Criminality of offences

Across the globe there are two predominant systems of law which govern the manner in which state and judicial forums tackle crimes.  They are the inquisitorial system and the adversarial system.  The prevalent system in India for dealing with offences is the adversarial system. In this system two advocates represent their parties' positions before an impartial judge, who attempts to determine the truth of the case. In India, as in other common law countries where this system exists, it is built on an extensive set of provisions incorporated in statutory laws of evidence and procedure. Inherent to the adversarial system are the principles of 'innocent until proven guilty', 'non-obligation to inculpate oneself' and 'double jeopardy'. Simultaneously the very nature of the system has built in incentives in the form of plea bargaining and compounding (settlement by paying money) by the accused to expedite the course of justice and mitigate expenditure and time spent in prosecuting the case.

In India income tax is a key source of funds that our government utilizes to fund its activities and serve the public. The Income Tax Department being empowered by the Income Tax Act 1961, Income Tax Rules 1962, Notifications and Circulars issued by Central Board of Direct Taxes (CBDT), Annual Finance Acts and Judicial pronouncements by Supreme Court and High Courts, is the biggest revenue mobilizer for the Government. The total tax revenues of the Central Government increased from Rs. 1392.26 billion in 1997-98 to Rs. 5889.09 billion in 2007-08. The Central Government has been empowered by Entry 82 of the Union List of Schedule VII of the Constitution of India to levy tax on all income other than agricultural income (subject to Section 10(1)).

The Government of India imposes tax on the income of all persons including individuals, Hindu Undivided Families (HUFs), companies, firms, association of persons, body of individuals, local authority and any other artificial judicial person. Levy of tax is separate on each of the persons. The levy is governed by the Indian Income Tax Act, 1961. The Indian Income Tax Department is governed by Central Board of Direct Taxes (CBDT) and is part of the Department of Revenue under the Ministry of Finance, Govt. of India.

Due to the importance this source of taxation plays in the governance of our country, the legislature has in its wisdom has incorporated provisions thereby defining certain acts as offences under the Income Tax Act. Sections 275A to 280 provides for various types of offences under which the Income Tax Department can prosecute an assessee/defaulter in the Court of Law. As the primary objective of the Act is to collect tax and generate revenue for the State and not criminalize and prosecute activities there are inherent safety riders incorporated in the Act which have to be satisfied before which prosecution of these offences can be initiated by courts. For instance prosecution can be launched only at the instance of the Commissioner of Income Tax or Commissioner of Income Tax (Appeals) or the Appropriate Authority who has to state his reasons for initiating so. As is inherent in the adversarial system and more so as the legislative intent was to ensure prosecution of offences as the last resort, all these offences are compoundable, as per guidelines published by the CBDT. As such the following acts are designated as offences under the Central Act.


1.Removal, parting with or otherwise dealing with books of account, documents, money, bullion, jewelry and other valuable things put under restrain during search- 275A.
2.Fraudulent removal, concealment, transfer or delivery of property or any interest in property with the intention to thwart recovery of tax - 276.
3.Failure on the part of  a company liquidator or receiver to give notice of his appointment to an Assessing Officer or failure to set apart amount asked so by the assessing officer or parting away properties and assets of the company in contravention of the provisons of the acts - 276A.
4.Failure to enter in to a written agreement or failure to furnish the statement of immovable property intended to be transferred u/s 269 UC or surrender or deliver the same after purchase by appropriate authority u/s 269UE or transferring property without permission of Appropriate Authority u/s 269UL- 276AB.
5.Failure to pay to the credit of the central govt the tax deducted at source and failure to pay tax collected at source - 276B, 276BB.
6.Wilful attempt to evade any tax penalty or interest and willful attempt to evade payment of any tax penalty interest levied - 276C.
7.Wilful failure to furnish return in due time and failure to furnish return in search cases as required u/s 158 BC ' 276CC, 276CCC.
8.Wilful failure to produce accounts and documents as directed  by issue of notice u/s 142 (1) and wilful failure to get accounts audited as directed by assessing officer u/s142(2A) ' 276D.
9.Making a statement in verification or delivery of account or statement which is false and which the concerned person knows or believes to be false ' 277.
10.Abetting or inducing another person to make or deliver an account or statement or declaration relating to taxable income which is knowingly false ' 278.
11.A public servant furnishing any information in contravention to the provisions of the income tax act ' 280.

The Act has by virtue of section 278E in distinction of the inherent principles of the adversarial system of criminal law has shifted the burden of proof on the accused. As such the accused would be guilty until he proves himself to be innocent for offences committed under this act. Among these aforementioned offences the CBDT guidelines have brought out a distinction between technical and non-technical offences. As such an act of failure to pay to the credit of the central govt the tax deducted at source and failure to pay tax collected at source are technical offences. All the other offences in the Chapter are regarded non-technical.  This distinction bears importance as in case of technical offences the same can be compounded or settled even prior to filing of complaint! This clearly indicates the focus of the CBDT which is to generating revenue and not prosecute minor lapses by such taxpaying entities.

Compounding in all cases results in money being paid which is calculated as per the CBDT circulars. In fact in case of non technical offences if the case is at the stage prosecution compounding fess also includes a fee for prosecution establishment
As regards compounding of all offenses, technical and non technical, the same are governed by CBDT's F.No. 285/161/90-IT(Inv.) dated 30th September, 1994 and the amendment to the same vide F.No. 285/26/2002-IT(Inv.) dated 29th July 2003. As such to compound technical offenses, technical and non technical the following conditions are necessary.  
 
1.There should be a written request from the assessee.
2.The amount of undisputed tax, interest and penalties relating to the default should have been paid.
3.The assessee should express his willingness to pay both the prescribed compounding fees as well as establishment expenses.
4.The order passed for compounding should be passed only when compounding charges comprising of composition fee and establishment expenses are paid by the assessee/defaulter. 

As mentioned before technical offences stand on a different footing from non-technical or substantive ones as is obvious from the following guidelines issued

1.All types of cases relating to technical offences are to be compounded by CCIT/DGIT.
2.There is to be  no distinction between first offence and subsequent offence
3.CCIT/DGIT shall not reject an application for compounding of a technical offence, if all conditions prescribed in the guidelines are satisfied.

A non-technical offence can be compounded with the approval of the Board subject to satisfaction of the following conditions cumulatively in addition to conditions mentioned above

1.The offence is the first one by the assessee.
2.The Board's prior approval is obtained.
The guidelines also provide that in suitable and deserving case, the offence may be compounded after seeking approval from F.M.
The composition fees for compounding of various offences are as under:

Sec. 276 :- Rs. 2/- for every day during which the default continues.
Sec. 276B :- 2% per month of the amount of tax in default.
Sec. 276BB:- 2% per month of the amount of tax in default.
Sec. 276C(1) :-  50% of the tax amount sought to be evaded
Sec. 276C(2) :- 2% per month of the amount of tax the payment of which is sought to be   evaded.
Sec 276CC:-   2% per month of the assessed tax.
Sec 277 :- 50% of the tax amount sought to be evaded

No composition fee is prescribed for other offences. However, it has been provided that the Board can consider the same on a case to case basis. The compounding charges shall also include prosecution establishment expenses which will be charged @ 10% of the composition fee subject to a maximum of Rs. 50,000/-.

Thus, compounding of an offence could only be made if a written request by way of an application is made by an assessee bringing out in the application following points.

i.The nature of offence for which prosecution is launched or proposed to be launched;
ii.The reasons and circumstances under which the offence was committed;
iii.The applicant's willingness to pay the compounding fees including the part of litigation expenses incurred by the Department till the date of compounding of the offence;
iv.Whether the applicant satisfies the requisite conditions or not.
v.Lastly there should be a prayer to compound the offence by accepting the compounding fees on getting the approval about the compounding fees by the compounding authority.

As such one can see that the Revenue has focused and modified its guidelines to attract and induce more defaulters and assesses to compound the offenses and as such the offences under the Act on today's date only exist to induce assesses to pay money instead of suffering incarceration. Though these offences exist in the statute the conviction rate for the same unearths the underlying truth that the same are mere tools empowering the revenue to threaten and extort a tax payer. The act empowers and grants sweeping powers to the CIT and CIT(A) regarding compounding and as opposed to the Criminal Procedure Code, 1973 there is no judicial supervision involved in compounding of the offences under it. By virtue of 278E defenses bases on mens rea or intent which are part and parcel of every criminal offence have been taken away thereby in fact making them statutory offenses. The same though supported by the will of the legislature is contradictory to the principles of criminal jurisprudence as the period of incarceration for some of the offences goes till a maximum period of 7 years in some cases unlike most statutory offences.    

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