Non Payment of Income Tax cannot be termed as Tax Evasion – Madras HC


The Madras High Court has quashed the prosecution initiated by the income tax department under section 276C(2) of the Income Tax Act, 1961 by holding that there is no willful evasion of tax. Section 276C (2) of the Income Tax Act, 1961 provides that if a person willfully attempts to evade the payment of any tax, penalty or interest under the Act, he shall be punishable with imprisonment for a term not less than three months but which may extend to two years.

Fact of the case:

The Petitioner/Assessee S.P. Velayutham filed his income tax return showing his tax liability but did not pay the full amount of self-assessment tax. An Assessment Order was passed by the authorities confirming his taxable income.

Thereafter, an order for attachment of immovable property was passed by the income tax department and a show-cause notice was issued to the Assessee as to why prosecution under Section 276C (2) of the Income Tax Act should not be initiated against him for not paying the entire tax due as per his income tax return. The Assessee submitted that the entire amount of tax was not paid by him due to loss in business and that after the attachment of immovable property he could not mobilise funds. Justice N. Sathish Kumar observed that to prosecute a person there must be a willful attempt on the part of the assessee to evade payment of any tax, penalty, or interest.

Court Order:

Taking the overall fact and the nature of the compliant, this Court is of the view that the prosecution in this case is nothing but shear waste of time and there was no intention or willful attempt made by the Assessee to evade the payment of tax. Only he expressed his inability and mere failure to pay a portion of the tax cannot be construed to mean that he has willfully attempted to evade the payment of tax.


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