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Income Tax

Prosecution under Income Tax: Section 278E carves out an exception to the rule of mens rea

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[By Shaleen Shah (Partner), VNCA]

‘Mens rea’ can be loosely translated as ‘guilty mind’, and it is a vital component when attempting to assess the criminal liability of an individual.  The rule of mens rea says that an act itself does not make a person guilty of a crime, unless their mind is also guilty. This is a vital differentiation between an individual who accidentally does something that turns out to be a crime, and someone who set out in their mind to do something to harm another person or their property. In modern law, a person cannot generally be convicted of a crime unless it can be shown that he knowingly engaged in the illegal act.

However, the Jammu & Kashmir High Court in a recent decision, has carved out an exception to the rule of `mens rea’, while dismissing the petition of the assessee and vacating the stay on prosecution proceedings.

The Hon’ble Court observed thus:

“Under the Income-Tax Act, 1961 there are various provisions for compliance with taxing provisions and the collection of taxes. The Income-tax Act seeks to enforce tax compliance in a three fold manner; namely 1) Imposition of interests 2) Imposition of penalties and 3) Prosecutions. In the fight against tax evasion, monetary penalties are not enough.

When a calculating tax dodger finds it a profitable proposition to carry on evading taxes over the years, if the only risk to which he is exposed is a monetary penalty in the year in which he happens to be caught. The public in general also tends to lose faith and confidence in tax administration when a tax evader is caught, but the administration lets him get away lightly after paying only a monetary penalty- when money is no longer a major consideration with him if it serves his business interest.

The sections dealing with offences and prosecution proceedings are included in Chapter XXII of the Income-tax Act, 1961 i.e. S. 275A to S. 280D of the Act. The provisions of the said Code are to be followed relating to all offences under the Income-tax Act, unless the contrary is specially provided for by the Act. The concept of mens rea is integral to criminal jurisprudence. An offence cannot be committed unintentionally.

Generally a guilty mind is a sine qua non for an offence to be committed. However, the Taxation Laws S. 278E has carved out an exception to this rule. The said Section places the burden of proving the absence of mens rea upon the accused and also provides that such absence needs to be proved not only to the basic threshold of “preponderance of probability” but “beyond reasonable doubt”. In every prosecution case, the Court shall always presume culpable mental state and it is for the accused to prove the contrary beyond reasonable doubt. No doubt, this presumption is a rebuttable one.”

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