Probative worth of Income Tax Proceedings qua lawfulness of the sources of income. SC rejects IT orders/assessment as proof against charge of corruptions
ABCAUS Case Law Citation:
ABCAUS 1126 (2017) (02) SC
Date/Month of Pronouncement: 14th February, 2017
Important Case Laws Cited/relied upon:
Commissioner of Income Tax, U.P. Vs. Devi Prasad Vishwanath Prasad, (1969) ITR 194
Iqbal Singh Marwah & Anr. Vs. Meenakshi Marwah & Anr
CIT Patiala Vs. Piara Singh, 1980 Supp. SCC 166
Vishwanath Chaturvedi Vs. Union of India & Ors., (2007) 4 SCC 380
Probative worth of Income Tax Proceedings qua lawfulness of source of income – Supreme Court
In a landmark Judgment, the Supreme Court of India has today convicted Sasikala Natarajan (A2), V.N. Sudhakaran (A3) & J. Eavarasi (A4), along with other co-accused in the disproportionate assets Case. The case against Selvi J. Jayalalitha, being expired, have abated.
One of the major arguments of the accused was that the Trial Court wrongly excluded from consideration the Income Tax Assessment Orders in favour of the accused. It was argued that the term “income”, would also include receipts in the form of “gifts” and “loans” which have been disclosed to and accepted by the income tax authorities.
It was submitted that under the Prevention of Corruption Act, 1988 (“1988 Act”) the burden on the accused is proved by preponderance of probabilities as in a civil case and same is the degree of proof required under the Income Tax Act also. Therefore, where the assessee had established the income and the extent of the expenditure before the Income Tax authorities, the judicial decision thereunder would be binding on the prosecution in a case under the 1988 Act.
Referring to various Income Tax Assessment order, it was contended that income and expenditure have been accepted by the Income Tax authorities for all the five years of the check period. In none of the assessment years any income is assessed as from an unexplained source.
However, the Hon’ble Supreme Court after dwelling on the concept of conspiracy in depth, observed that the corruption is an enemy of the nation and tracking down corrupt public servants and punishing such persons is a necessary mandate of the Act 1988.
The Probative worth of Income Tax Proceedings qua lawfulness of the source of income was dealt with in depth by the Hon’ble Apex Court. The Highlights of the same is as under:
1. Though the Income Tax Returns and the orders passed in the Income Tax Proceedings recorded the income of the accused concerned as disclosed in their returns, such returns and the orders in the I.T. Proceedings would not by themselves establish that such income had been from lawful source as contemplated in the explanation to Section 13(1(e) of the 1988 Act and that independent evidence would be required to account for the same.
2. Even if the income tax returns, proceedings and the decisions rendered therein are relevant and admissible in evidence as per the Indian Evidence Act, 1872, these do not furnish any guarantee or authentication of the lawfulness of the source(s) of income.
3. Even if income tax returns and assessment orders are admissible, the probative value would depend on the nature of the information furnished, the findings recorded in the orders and having a bearing on the charge levelled. In any view of the matter, however, such returns and orders would not ipso facto either conclusively prove or disprove the charge and can at best be pieces of evidence which have to be evaluated along with the other materials on record.
4. In view of the charge of conspiracy and abetment, neither the income tax returns nor the orders passed in the proceedings relatable thereto, either definitively attest the lawfulness of the sources of income of the accused persons or are of any avail to them to satisfactorily account the disproportionateness of their pecuniary resources and properties as mandated by Section 13(1)(e) of the 1988 Act.
5. There is neither any statutory provision nor any legal principle that the findings recorded in one proceeding may be treated as final or binding on the other as both the cases have to be decided on the basis of the evidence adduced therein.
6. The Hon’ble Court cited its judgment wherein an Indian citizen engaged in smuggling gold from Pakistan to India was allowed deduction u/s 10(1) for confiscating of currency notes as loss occasioned in pursuing the business. Thus the Court pointed out that it too proves against the probative efficacy of an income tax proceeding or order passed therein as a conclusive determinant of lawfulness of the source of any income involved therein.
7. The property in the name of the income tax assessee itself cannot be a ground to hold that it actually belongs to such an assessee and that if this proposition was accepted, it would lead to disastrous consequences. In such an eventuality it will give opportunities to the corrupt public servant to amass property in the name of known person, pay income tax on their behalf and then be out from the mischief of law.
8. In a previous judgment, the Apex Court held that it is well settled that contracts which are prohibited by statute, the prohibition being either express or implied, would be illegal and unenforceable if they are entered into in contravention of the statute. If the business is illegal, neither the profits earned or the losses incurred would be enforceable in law. But that does not take the profits out of the taxing statute. Similarly the taint of illegality of the business cannot detract from the losses being taken into account for computation of the amount which can be subjected to tax as “profits” under Section 10(1) of the Act of 1922 and the Tax Collector cannot be heard to say that he will bring the gross receipts to tax.
9. In the tax regime, the legality or illegality of the transactions generating profit or loss is inconsequential qua the issue whether the income is from a lawful source or not. The scrutiny in an assessment proceeding is directed only to quantify the taxable income and the orders passed therein do not certify or authenticate that the source(s) thereof to be lawful and are thus of no significance vis-à-vis a charge under Section 13(1)(e) of the 1988 Act.
10. In a yet previous judgment of disproportionate assets related to sitting Chief Minister of U.P. and his relatives, The Apex Court observed that the Income Tax Department was concerned only with the source of income and whether the tax was paid or not and, therefore, only an independent agency or CBI could, on court direction, determine the question of disproportionate assets.
It was again emphasized that submission of income tax returns and the assessments orders passed thereon, would not constitute a full proof defence against a charge of acquisition of assets disproportionate to the known lawful sources of income as contemplated under the 1988 Act and that further scrutiny/analysis thereof is imperative to determine as to whether the offence as contemplated by the PC act is made out or not.
The Supreme Court observed that that a conspiracy can be proved by circumstantial evidence as mostly having regard to the nature of the offending act, no direct evidence can be expected.
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