Is penalty under s.271(1)(c) criminal, quasi-criminal or civil?
Civil — a strict liability, so mens rea need not be established. But the conditions of the section must still be satisfied, and the matter was sent back to be reconsidered on that footing.
Decided by the Supreme Court (Supreme Court of India — Tarun Chatterjee and R.M. Lodha, JJ.) on 2009-08-24, reported as (2009) 317 ITR 1 (SC); (2009) 183 Taxman 444 (SC); (2009) 225 CTR 248 (SC); Civil Appeal No. 5769 of 2009. It bears on section 271(1)(c) of the Income Tax Act 1961, in Penalty matters.
It settles the character of the liability in a single sentence, which is why it appears in almost every penalty order. It is also the case that carried Rajasthan Spinning's qualification into income tax explicitly.
Binding on every court and authority in India.
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The assessee filed his return for assessment year 2002-03 on 8 August 2002 declaring income of Rs. 1,98,50,021. A notice with a questionnaire was issued on 29 November 2002 and he attended and furnished details. It then emerged that during the previous year he had worked for DHL International (S) Pte. Ltd. in Singapore and had been paid salary of US$ 36,680.79, equivalent to Rs. 17,81,952, on which tax had been withheld there; believing that income was therefore not taxable in India he had omitted it, but he offered it during the proceedings. He had also received Rs. 5,00,000 from a former employer, claimed exempt under s.10(10B) as retrenchment compensation, which the Assessing Officer rejected on the ground that he was not a workman, and Rs. 22,812 of bank interest which he also offered. Income was assessed at Rs. 2,21,54,785 and penalty of Rs. 7,75,211 was imposed under s.271(1)(c) on 16 March 2003. The assessee accepted the assessment but appealed against the penalty. The Commissioner (Appeals) cancelled it on 22 August 2005, the Tribunal upheld that on 22 December 2006, and the Delhi High Court dismissed the Revenue's appeal on 25 January 2008 with costs, holding, on its own decision in CIT v. Ram Commercial Enterprises Ltd. as approved in Dilip N. Shroff, that it was not discernible from the assessment order why the Assessing Officer had initiated penalty proceedings or under which limb of s.271(1)(c).
The Revenue's appeal was allowed, the Delhi High Court's judgment of 25 January 2008 was set aside and the matter remitted to that Court for fresh consideration in the light of Dharamendra Textile Processors and Rajasthan Spinning & Weaving Mills. The Court did not decide whether penalty was leviable on these facts. What it stated was the character of the liability: the penalty in s.271(1)(c) is neither criminal nor quasi-criminal but a civil liability, albeit a strict liability, so mens rea is not essential (para 11); and that for s.271(1)(c) to apply, the conditions stated in the section must exist (para 14). The High Court's reliance on Ram Commercial Enterprises as approved in Dilip N. Shroff could not stand, because Dilip N. Shroff had been held not to lay down good law in Dharamendra Textile Processors, which had in turn been explained in Rajasthan Spinning (para 15).
Reading s.271(1)(c) with Explanation 1, the Court noted that penalty may be directed where the Assessing Officer is satisfied that particulars of income have been concealed or inaccurate particulars furnished, with the quantum fixed by clause (iii), and that Explanation 1 deems the amount added or disallowed to represent concealed income where the person offers no explanation, offers a false one, or offers one he cannot substantiate and cannot show to be bona fide with full disclosure of the material facts. On that reading the liability is civil and strict, so mens rea is not essential (para 11). The Court then set out the three-Judge Bench decision in Dharamendra Textile Processors, which held that Dilip N. Shroff did not lay down correct law because the difference between s.271(1)(c) and s.276C had been lost sight of, and that the Explanations indicate strict liability (para 12), and the explanation of that decision in Rajasthan Spinning & Weaving Mills, that Dharamendra Textile is not authority for penalty attaching automatically to every case, but means that once the section applies the authority has no discretion in quantifying the penalty (para 13). Immediately after that, the Court recorded that it goes without saying that for the applicability of s.271(1)(c) the conditions stated in the section must exist (para 14). Since the High Court had proceeded on a decision approved in Dilip N. Shroff, the matter had to go back for reconsideration in the light of the two later decisions (para 15).
The penalty spoken of in section 271(1)(c) is neither criminal nor quasi-criminal but a civil liability; albeit a strict liability.
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Handle my notice → Ask a CA on WhatsAppCivil — a strict liability, so mens rea need not be established. But the conditions of the section must still be satisfied, and the matter was sent back to be reconsidered on that footing. This was decided by the Supreme Court (Supreme Court of India — Tarun Chatterjee and R.M. Lodha, JJ.) and bears on section 271(1)(c) of the Income Tax Act 1961. It is reported as (2009) 317 ITR 1 (SC); (2009) 183 Taxman 444 (SC); (2009) 225 CTR 248 (SC); Civil Appeal No. 5769 of 2009. It settles the character of the liability in a single sentence, which is why it appears in almost every penalty order. It is also the case that carried Rajasthan Spinning's qualification into income tax explicitly. If it applies to you, the first step is this: Accept the civil-liability characterisation and argue the statutory conditions instead.
The assessee filed his return for assessment year 2002-03 on 8 August 2002 declaring income of Rs. 1,98,50,021. A notice with a questionnaire was issued on 29 November 2002 and he attended and furnished details. It then emerged that during the previous year he had worked for DHL International (S) Pte. Ltd. in Singapore and had been paid salary of US$ 36,680.79, equivalent to Rs. 17,81,952, on which tax had been withheld there; believing that income was therefore not taxable in India he had omitted it, but he offered it during the proceedings. He had also received Rs. 5,00,000 from a former employer, claimed exempt under s.10(10B) as retrenchment compensation, which the Assessing Officer rejected on the ground that he was not a workman, and Rs. 22,812 of bank interest which he also offered. Income was assessed at Rs. 2,21,54,785 and penalty of Rs. 7,75,211 was imposed under s.271(1)(c) on 16 March 2003. The assessee accepted the assessment but appealed against the penalty. The Commissioner (Appeals) cancelled it on 22 August 2005, the Tribunal upheld that on 22 December 2006, and the Delhi High Court dismissed the Revenue's appeal on 25 January 2008 with costs, holding, on its own decision in CIT v. Ram Commercial Enterprises Ltd. as approved in Dilip N. Shroff, that it was not discernible from the assessment order why the Assessing Officer had initiated penalty proceedings or under which limb of s.271(1)(c). The matter was decided on 2009-08-24 by the Supreme Court (Supreme Court of India — Tarun Chatterjee and R.M. Lodha, JJ.). On those facts the Supreme Court held as follows. The Revenue's appeal was allowed, the Delhi High Court's judgment of 25 January 2008 was set aside and the matter remitted to that Court for fresh consideration in the light of Dharamendra Textile Processors and Rajasthan Spinning & Weaving Mills. The Court did not decide whether penalty was leviable on these facts. What it stated was the character of the liability: the penalty in s.271(1)(c) is neither criminal nor quasi-criminal but a civil liability, albeit a strict liability, so mens rea is not essential (para 11); and that for s.271(1)(c) to apply, the conditions stated in the section must exist (para 14). The High Court's reliance on Ram Commercial Enterprises as approved in Dilip N. Shroff could not stand, because Dilip N. Shroff had been held not to lay down good law in Dharamendra Textile Processors, which had in turn been explained in Rajasthan Spinning (para 15).
Reading s.271(1)(c) with Explanation 1, the Court noted that penalty may be directed where the Assessing Officer is satisfied that particulars of income have been concealed or inaccurate particulars furnished, with the quantum fixed by clause (iii), and that Explanation 1 deems the amount added or disallowed to represent concealed income where the person offers no explanation, offers a false one, or offers one he cannot substantiate and cannot show to be bona fide with full disclosure of the material facts. On that reading the liability is civil and strict, so mens rea is not essential (para 11). The Court then set out the three-Judge Bench decision in Dharamendra Textile Processors, which held that Dilip N. Shroff did not lay down correct law because the difference between s.271(1)(c) and s.276C had been lost sight of, and that the Explanations indicate strict liability (para 12), and the explanation of that decision in Rajasthan Spinning & Weaving Mills, that Dharamendra Textile is not authority for penalty attaching automatically to every case, but means that once the section applies the authority has no discretion in quantifying the penalty (para 13). Immediately after that, the Court recorded that it goes without saying that for the applicability of s.271(1)(c) the conditions stated in the section must exist (para 14). Since the High Court had proceeded on a decision approved in Dilip N. Shroff, the matter had to go back for reconsideration in the light of the two later decisions (para 15). In the words reproduced by the source cited on this page: "The penalty spoken of in section 271(1)(c) is neither criminal nor quasi-criminal but a civil liability; albeit a strict liability." The decision followed or applied Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277 / 174 Taxman 571 (SC); Union of India v. Rajasthan Spg. & Wvg. Mills [2009] 180 Taxman 609 (SC).
It was decided by the Supreme Court on 2009-08-24 and is reported as (2009) 317 ITR 1 (SC); (2009) 183 Taxman 444 (SC); (2009) 225 CTR 248 (SC); Civil Appeal No. 5769 of 2009. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 271(1)(c), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The Revenue's appeal was allowed, the Delhi High Court's judgment of 25 January 2008 was set aside and the matter remitted to that Court for fresh consideration in the light of Dharamendra Textile Processors and Rajasthan Spinning & Weaving Mills. The Court did not decide whether penalty was leviable on these facts. What it stated was the character of the liability: the penalty in s.271(1)(c) is neither criminal nor quasi-criminal but a civil liability, albeit a strict liability, so mens rea is not essential (para 11); and that for s.271(1)(c) to apply, the conditions stated in the section must exist (para 14). The High Court's reliance on Ram Commercial Enterprises as approved in Dilip N. Shroff could not stand, because Dilip N. Shroff had been held not to lay down good law in Dharamendra Textile Processors, which had in turn been explained in Rajasthan Spinning (para 15). It arises in Penalty matters, on section 271(1)(c) of the Income Tax Act 1961, and was decided by Supreme Court of India — Tarun Chatterjee and R.M. Lodha, JJ.. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Use the remand reasoning: the conditions must exist, and that is a question the department has to answer. Do not cite Hindustan Steel's 'quasi-criminal' description without reading this and Dharmendra Textile first.
Validity check could not be completed. Nothing doubting or overruling it was found, but no later decision applying or following it was located in the searches run for this entry, so its later treatment is not established here. Note also that it is a remand order and decides nothing on the facts. Section 271 has been made inapplicable for assessment year 2017-18 onwards, s.270A taking its place. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This is a remand, not a decision on whether penalty was due. The Delhi High Court had decided the case on the absence of a discernible satisfaction for initiating penalty; the Supreme Court set that aside because the authority the High Court had relied on, Dilip N. Shroff, was no longer good law after Dharamendra Textile Processors, and sent the matter back for fresh consideration. Cite it for the character of the s.271(1)(c) liability at para 11 and for the statement at para 14 that the conditions in the section must exist, not for any conclusion on these facts. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Revenue's appeal was allowed, the Delhi High Court's judgment of 25 January 2008 was set aside and the matter remitted to that Court for fresh consideration in the light of Dharamendra Textile Processors and Rajasthan Spinning & Weaving Mills. The Court did not decide whether penalty was leviable on these facts. What it stated was the character of the liability: the penalty in s.271(1)(c) is neither criminal nor quasi-criminal but a civil liability, albeit a strict liability, so mens rea is not essential (para 11); and that for s.271(1)(c) to apply, the conditions stated in the section must exist (para 14). The High Court's reliance on Ram Commercial Enterprises as approved in Dilip N. Shroff could not stand, because Dilip N. Shroff had been held not to lay down good law in Dharamendra Textile Processors, which had in turn been explained in Rajasthan Spinning (para 15).
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Valuables were found at my premises and I say they are not mine. Who has to prove ownership?
The officer disallowed your claim. Does a disallowance automatically bring penalty with it?
The penalty notice does not say whether I concealed income or filed inaccurate particulars. Does that matter?
Is a valuation you put on an asset 'inaccurate particulars' if the officer disagrees with it?