Under Chapter XII of the (Indian) Income Tax Act-1961, a person cannot be prosecuted for an offence Under Sections 275A, 275B, 276, 276A, 276B, 276BB, 276C, 276CC, 276D, 277, 277A or 278, except with the previous sanction of the Principal Commissioner or Commissioner or Commissioner(Appeals) or the appropriate Authority. Accordingly, in all cases of prosecution the fact of proper sanction by a competent authority is sine qua non, for initiating prosecution against an offender by the Income Tax Authorities. The issue of valid previous sanction becomes important, and may be taken as a defense by the accused during the course of trial. Following are the important points, which are to be considered, while granting sanction in any matter:
- The authorized official or the competent authority shall be competent to grant the sanction within its territorial jurisdiction, otherwise the prosecution of the accused may stand vitiated.
- The sanctioning authority shall also take into consideration all relevant facts and material available before it, so as to arrive at a judicious decision.
- A sanction by a sanctioning authority shall also be based on a speaking order, and mere assertion that the sanctioning authority has seen the documents before it and applied its mind may not be sufficient to uphold the sanction.
- The process of grant of sanction is not mechanical or a mere formality, as it is expected that the sanctioning authority will apply its mind before the grant of the sanction of prosecution.
It has been judicially well established that when any authority takes into consideration partly relevant and partly irrelevant facts and/ or does not take into consideration relevant facts, the entire conclusion is bound to be perverse and vitiated.
The Hon'ble Supreme Court in the case of Municipal Committee vs. Punjab State Electricity Board [Ref.: [2010] 13 SCC 216] explained what constitutes a 'perverse order' in the following terms:
"If a finding of fact is arrived at by:
- ignoring or excluding relevant material, or
- by taking into consideration irrelevant material, or
- if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse,
then the finding is rendered infirm in the eyes of law.
It is a well-established law that when power is given under the Statute to a specific authority to do certain thing in a certain manner, then such power can be exercised by such authority alone and none else. It is an established principle of law that such authority, unless permitted by the Statute, cannot delegate such power/ function to another authority [Ref.: Ramana Dayaram Shetty V. IAAI: [1979] 3 SCC 489].
The Hon'ble Supreme Court in the case of A.K. Roy V. State of Punjab [Ref.: AIR 1986 SC 2160], observed as under:
"A careful analysis of the language of Section 20(1) of the Act clearly shows that it inhibits institution of prosecutions for an offence under the act except on fulfillment of one or the other of the two conditions.
- Either the prosecutions must be instituted by the Central Government or the State Government or a person authorized in that behalf by the Central Government or the State Government, or
- the prosecutions should be instituted with the written consent of any of the four specified categories of authorities or persons.
If either of these two conditions is satisfied, there would be sufficient authority for the institution of such a prosecution for an offence under the Act. Where a power is given to do a certain thing in a certain way, the thing must be done in that way or not at all. Other modes of performance are necessarily forbidden.
The provision contained in Section 20(1) of the Act does not contemplate the institution of a prosecution by any person other than those designated. The terms of Section 20(1) do not envisage further delegation of powers by the person authorized, except that such prosecution may be instituted with the written consent of the Central Government or the State Government or the person authorized. The use of the negative words in Section 20(1) "No prosecution for an offence under this Act..... shall be instituted except by or with the written consent of" plainly make the requirements of the section imperative. That conclusion ours must necessarily of follow from the well-known rule of construction of inference to be drawn from the negative language used in a statute stated by Craies on Statute Law, 6th edn., p. 263 in his own terse language:
If the requirements of a statute which prescribe the manner in which something is to be done are expressed in negative language, that is to say, if the statute enacts that it shall be done in such a manner and in no other manner, it has been laid down that those requirements are in all cases absolute, and that neglect to attend to them will invalidate the whole proceedings."
This is a well settled law that penal/prosecution provisions are required to be strictly construed and nothing can be read/imported into the specific language of the provisions. Further, if any doubt arises with regard to the interpretation of the penal provision, the one not inflicting the penalty or deterrent may be preferred [Ref.: Maxwell's The Interpretation of Statutes, 12th edition (1969), State of AP Vs. Nagoti Venkataramana: (1996) 6 SCC 409, CCE Vs. Oriental Fabrics (P) Ltd: (2004) 1 SCC 597, CIT V. JDS Apparels (P) Ltd: 370 ITR 454 (Del)].
Although, the definition of "Commissioner" as provided under Section 2 clause 16 of the Income Tax Act, 1961, includes Commissioner of Income Tax, Director of Income Tax, Principal Commissioner of Income Tax and Principal Director of Income Tax Act, 1961 in its ambit, still these terms cannot be used interchangeably and the power delegated to one class of officers has to be exercised by that class of officers only. The Legislature has made fine distinction between the authorities constituted under the Income Tax Act which is evident from the nomenclatures used in the sections mentioned herein below:
Under
- Section 127 uses both the expressions Principal Chief Commissioner or Commissioner as well as Principal Director General or Director General;
- Sections 132, 132A and 133A uses the expressions Principal Director General or Director General or Principal Director or Director or Principal Chief Commissioner of Chief Commissioner or Principal Commissioner or Commissioner;
- Various sections in Chapter XIV relating to procedure for assessment unless uses the expressions Commissioner or Principal Commissioner and not the expressions Director of Principal Director [refer sections 151, 153A, 153B and 153C, etc.];
- Chapter XX relating to appeals and revision also uses the expression Principal Commissioner or Commissioner and not the expression Principal Director or Director;
On perusal of the aforesaid, it will clearly emerge that the Legislature has consciously, whether deem fit and appropriate, either used both the expressions, i.e. "Director" and "Commissioner" and certain provisions only uses one of the expression, depending upon the nature and scope of power to be exercised. The aforesaid expressions are not used interchangeably by the Legislature and therefore use of the one of the expression would not necessarily mean that the other authority has also been granted power under the relevant provision.
It is important to note that section 2 clearly provides for application of definitions contained therein unless the "context otherwise requires". Meaning thereby the definition given in section 2 cannot, ipso facto, be applied to various provisions of the Income Tax Act, 1961 and it is incumbent to see the context of the relevant provisions before importing/ applying the definition clause.
It is a well settled law that it cannot be contended that expression as defined in the interpretation clause would necessarily carry the same meaning throughout the Statute. [Ref.: (K. Balarishna Rao V. Haji Abdulla Sait: (1980) 1 SCC 321), (Printers (Mysore) Ltd Vs. ACTO: (1994) 2 SCC 434), (State of Maharashtra Vs. IMA: (2002) 1 SCC 589), (Dr. Nalini Mahajan Vs. DIT (Inv): 257 ITR 123 {Del}].
In the case of Dr. Nalini Mahajan vs. DIT (Inv) [Ref.: 257 ITR 123(Del)], the issue before the Hon'ble Delhi High Court was whether Additional Director had the authority to authorize search under section 132(1) of the Income Tax Act, 1961. The Hon'ble Court while deciding the present case observed following things:
Section 132(1) of the Income Tax Act, 1961 provided that the Director General or Director or the Chief Commissioner or Commissioner or such Joint Director or Joint Commissioner as may be empowered by the board to authorize search and seizure operation.
Section 2(21) defined expression Director General or Director to include Additional Director or Joint Director. Based on the said definition clause, it was the case of the Revenue that Additional Director is also competent to authorize search under section 132(1) of the Income Tax Act, 1961.
The Hon'ble Court after elaborating considering the entire scheme held that statutory power under section 132(1) must be exercised by the authority who has expressly been conferred therein.
The relevant points that arises out from the judgment are as under:
"In terms of sub-section (1) of section 132 of the Act, a statutory power has been conferred upon the authorities specified therein.
- Such statutory power must be exercised by the authority who has expressly been conferred therewith.
- The provisions of the Income-tax Act clearly envisage a hierarchy of officers.
- Had the intention of Parliament been to confer the power of issuing authorization or warrant upon all the officers, who come within the purview of the interpretation clause of "Director" or "Director-General", it was not necessary to mention therein the Director or the Director-General or the Chief Commissioner of the Commissioner or any such Joint Director or Joint Commissioner, as the case may be, empowered in this behalf by the Board, inasmuch as the latter authorities would have also come within the purview of the definition of Director-General or Director.
Parliament has used the article "the" before the authority specified for exercising this statutory power. If a broad meaning as contained in section 2(21) of the Act is assigned to the definition of "Director", the authorizing officer and the Assessing Officer, although they may be different persons, would come within the purview thereof, which could never be the intention of the Legislature. Furthermore, had the Additional Director been covered within the purview of the definition of Director-General or Director, there was no necessity of defining Joint Director again, as has been done in section 2(28D) of the Act in terms whereof also a Joint Director would be an Additional Director.
- An interpretation clause is not a positive enactment. An interpretation clause, having regard to its limited operation, must be given a limited effect.
While giving effect thereto, the court must not forget that the scope and object of such a provision is subject to its applicability having relation to the context only. Notification bearing NO.703E dated September 6, 1989, only empowers the Director of Investigation to issue authorization for search and seizure operations all over India. A statutory power is conferred by the Board in favour of a particular statutory authority.
- The scope and purport of the said definition, cannot be extended to other authorities in whose favour the power has not been delegated. It is not in dispute that the Additional Director is also lower in rank than the Director.
- It is well settled that when a power is given to do a certain thing in a certain manner, the same must be done in that manner or not at all.
- A delegation of power is essentially a legislative function. Such a power of delegation must be provided for by the statute. The Director himself for certain matters is the delegating authority. He, unless the statute expressly states, cannot sub-delegate his power to any other authority. The Additional Director (Investigation) does not have power to authorize the Joint Director to issue a warrant. The aforesaid decision of the Hon'ble Delhi High Court has been followed in the case of CIT Vs. Jainson: 222 CTR 34 (Del)."
Section 279 of the Income Tax Act, 1961 mandates that a person shall not proceeded against for an offence as mentioned in the section therein, except that the provisions sanctions sanction of, "the Principal Commissioner or Commissioner (Appeals) or the appropriate authority. Proviso to sub-section (1) of section 279 of the Income Tax Act, 1961 further provides that the Principal Chief Commissioner or Chief Commissioner or, as the case may be, Principal Director General or Director General may issue instructions to the income tax authority specified in sub-section (1) for institution of prosecution proceedings.
In light of the above discussion, it is apparent that sub-section (1) of section 279 of the Income tax Act, 1961 only authorizes Principal Commissioner or Commissioner or Commissioner (Appeals) or the appropriate authority, as authorities competent to grant section for institution of prosecution proceedings.
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