Shri M A Zahid @APPELLANT@Hash Assistant Commissioner of Income Tax (OSD)

Whether a person issued with a notice under Rule 73 of the Second Schedule of the Income Tax Act 1961 is entitled to invoke section 438 of

Cr.P.C. is the question that arises for consideration in this petition.

The contextual background giving rise to the above question is that a notice was issued by the Assistant Commissioner of Income Tax (OSD), the Tax

Recovery Office, Bengaluru directing the petitioner to appear before him on 2nd day of April 2018 and to show cause why the petitioner should not be

committed to civil prison in execution of the said certificate? The notice reads as under: (Annexure-B)

“In execution of the certificate for A.Y. 2007-08, Whereas you have failed to pay the amount of arrears specified in said certificate Notice of

demand in ITCP-1 vide F.No.4/TRO.CR-1/CC-Belgaum/M.A.Zahid/2013-14 dated 18.06.2013 drawn up by the then Tax Recovery Officer (Central

Range-1), Bangalore for A.Y. 2007-08 for recovery of arrears in your case along with the interest payable under section 220(2) of the Income Tax

Act, 1961 and it is proposed to execute the above certificate by arrest and imprisonment of your person;

You are hereby required to appear before the undersigned on the 02nd day of April 2018 at 11:05 AM and to show cause why you should not be

committed to the civil prison in execution of the said certificate.

Given under my hand and seal at Bangalore this 28th day of March 2018.â€​

The case of the petitioner is that he has been carrying on business in the name and style of S.M.S.K. Mineral Trading Company at Hospet,

Karnataka. He is an income tax assessee paying taxes regularly. In connection with the said business there have been certain demands from the

Income Tax department, which were in excess to the taxes paid by the petitioner and as such, there was some dispute regarding the actual tax to be

paid by the petitioner.

The petitioner received three notices to show cause in Form No.ITCP-25 dated 28.3.2018 for the assessment year 2007-08, 2009-10, 2010-11

respectively. Apprehending his arrest pursuant to the said communication, the petitioner approached the LIX Addl. City Civil & Sessions Judge,

Bangalore for grant of anticipatory bail. The learned Sessions Judge having rejected the petition, the petitioner has approached this court seeking

protection from arrest under section 438 of Cr.P.C.

4(1) The objection raised by the respondent is that petition under section 438 of Cr.P.C. is not maintainable against the show cause notice issued under

Rule 73 of the Second Schedule of the Income Tax Act. Any order passed under Rule 73 is appealable under Rule 86 of the Second Schedule of the

Income Tax Act. Rule 74 to 81 of Second Schedule of Income Tax Act further provide for mechanism of release of the assessee subject to

compliance of certain conditions. Therefore, the petitioner is not entitled to maintain the petition under section 438 of Cr.P.C.

4(2) It is further contented that against the show cause notice referred to in the petition, the petitioner has approached the High Court in

W.P.14833/2018. Though interim order was requested, the same has not been granted. The petitioner is not entitled to invoke two parallel remedies in

respect of the same cause of action. On this score also the petition is liable to be rejected.

4(3) Provisions of section 438 of Cr.P.C. mandates accusation of having committed a non-bailable offence. In the various notices issued by the

respondent, no offence has been alleged to have been committed by the petitioner. The petitioner has not established that he has been accused of

committing a non-bailable offence under any statute. Therefore, the provision of section 438 of Cr.P.C. is not attracted to the facts of this case.

4(4) The jurisdiction of this court under section 438 of Cr.P.C. could be exercised only in the event of any offences alleged to have been committed

under the Indian Penal Code or any offence under other law as contemplated under section 4 of Cr.P.C. The notices issued to the petitioner do not

allege commission of any offence under Indian Penal Code or under the provisions of Income Tax Act. Therefore, the question of invoking the

jurisdiction under section 438 of Cr.P.C. does not arise.

4(5) A show cause notice dated 30.1.2018 was issued by the Principal Commissioner of Income Tax for the purpose of issuing sanction for offence

punishable under section 276C(2) of the Act. The petitioner has to reply to the said notice. The Principal Commissioner of Income Tax either can

accept the explanation or drop the proposal or issue sanction for filing complaint under section 200 of Cr.P.C. before the Special Court in terms of

section 280A of the Act and the same would be dealt by the Special Court as per the provisions of the Criminal Procedure Code. The Income Tax

Department has no power to arrest in the course of proceedings under section 276C(2) of the Income Tax Act. Therefore, the apprehension

expressed by the petitioner is misplaced.

4(6) Show cause notice under Rule 73 of the Second Schedule is for non-payment of the tax dues pursuant to the demand raised by the Assessing

Officer. Whereas the show cause notice under section 276C(2) of the Act is for willful attempt to evade payment of any tax, penalty or interest. In

the present case, show cause notice under section 276C(2) of the Act has been issued for non-payment of admitted tax on the income voluntarily

admitted by the petitioner, which is not under dispute. The attempt of the petitioner interlinking these two different proceedings is an attempt to mislead

this Court. If the show cause notice issued under Rule 73 of the Second Schedule is interfered by this Court, the very purpose and object of Rule 73 of

the Second Schedule would be defeated and the Rule 73 would be rendered redundant.

4(7) The assessee has failed to discharge the admitted tax liability. The admitted tax liability is not an issue in any of the appeals pending before the

Appellate Authorities. What is proposed to be recovered under the show cause notice is only the admitted tax. The demand of tax has not been stayed

by any authority, tribunal or by any court. In the usual course, if demand of tax is sought to be stayed, the same would be considered subject to

payment of partial demand. Without exhausting the said remedy, the petitioner is not entitled to maintain this petition and hence, the petition is liable to

be rejected.

In the course of the argument, the learned counsels appearing for the respective parties have reiterated the very same grounds urged by them in the

petition and in the objection statement submitted before the court with reference to the relevant provisions of the Income Tax Act and the Code of

Criminal Procedure. Both the learned counsel submit that they have not come across any precedent on the question of the jurisdiction of the Sessions

Court and the High Court to stall the arrest of the assessee under Section 438 of Cr.P.C., against whom recovery proceedings are initiated under the

provisions of the Income Tax Act.

I have bestowed my careful thought to the contentions urged by the respective parties and have perused the documents filed along with the petition.

In order to resolve the controversy, a quick reference may have to be made to section 438 of Cr.P.C. It reads as under:

 “Section 438. Direction for grant of bail to person apprehending arrest.-

(1) Where any person has reason to believe that he may be arrested on accusation of having committed a non-bailable offence, he may apply to the

High Court or the Court of Session for a direction under this section that in the event of such arrest he shall be released on bail; and that Court may,

after taking into consideration, inter alia, the following factors, namely:-

(i) the nature and gravity of the accusation;

(ii) the antecedents of the applicant including the fact as to whether he has previously undergone imprisonment on conviction by a Court in respect of

any cognizable offence;

(iii) the possibility of the applicant to flee from justice; and

(iv) where the accusation has been made with the object of injuring or humiliating the applicant by having him so arrested, either reject the application

forthwith or issue an interim order for the grant of anticipatory bail:

Provided that, where the High Court or, as the case may be, the Court of Session, has not passed any interim order under this sub-section or has

rejected the application for grant of anticipatory bail, it shall be open to an officer-in-charge of a police station to arrest, without warrant the applicant

on the basis of the accusation apprehended in such application.

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(3) If such person is thereafter arrested without warrant by an officer in charge of a police station on such accusation, and is prepared either at the

time of arrest or at any time while in the custody of such officer to give bail, he shall be released on bail, and if a Magistrate taking cognizance of such

offence decides that a warrant should issue in the first instance against that person, he shall issue a bailable warrant in conformity with the direction of

the Court under sub-section (1).â€​

It is now well settled that section 438 of Cr.P.C. is a devise to secure the liberty of a person who is apprehending his arrest in a non-bailable

offence. As held by the Constitutional Bench of the Hon’ble Supreme Court in GURUBAKSH SINGH SIBBIA vs. STATE OF PUNJAB, AIR

1980 S.C. 1632, anticipatory bail is “neither a passport to the commission of crimes nor a shield against any and all kinds of accusation, likely or

unlikelyâ€. ‘Reason to believe’ that a person is likely to be arrested for a non-bailable offence is a sine qua non for invoking the jurisdiction

under section 438 of Cr.P.C.

In the case in hand, the petitioner has knocked the doors of this Court on the apprehension that he is likely to be arrested by the Assistant

Commissioner of Income Tax (OSD) pursuant to the notice at “Annexure-Bâ€. Placing reliance on section 276-C of the Income Tax Act, 1961,

and part II of the First Schedule of the Code of Criminal Procedure, learned counsel has put forth a plea that an act of willful attempt to evade any

tax, penalty or interest is made punishable with rigorous imprisonment for a term which shall not be less than six months, but which may extend to

seven years and with fine in case where the amount sought to be evaded exceeds twenty-five hundred thousand rupees. This provision when

conjointly read with Part II of the First Schedule of the Criminal Procedure Code undoubtedly renders the offence non-bailable in nature and

therefore, the notice issued under Rule 73 of the Second Schedule of Income Tax Act has to be construed to have been issued in respect of the

commission of a non-bailable offence. By the said notice, the respondent having threatened to arrest and detain the petitioner in civil prison, there is

well founded apprehension of arrest within the meaning of Section 438 Cr.P.C., and therefore the petitioner is entitled for a protection order under

Section 438 of Cr.P.C.

The argument of the learned counsel for the petitioner, in my opinion, is totally misplaced. Wilful attempt to evade tax etc., is dealt in Section 276-

C of the Income Tax Act. The section reads as under:

276-C. Wilful attempt to evade tax, etc.-(1) If a person willfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable

or imposable under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, he

punishable,-

(i) in a case where the amount sought to be evaded exceeds (twenty five hundred thousand rupees), with rigorous imprisonment for a term which shall

not be less than six months but which may extend to seven years and with fine.

There cannot be two opinions that section 276 is a penal provision which constitutes evasion of tax, penalty or interest an offence under the Income

Tax and therefore by virtue of the First Schedule Part II of Cr.P.C., the offence under section 276 has to be classified as a non-bailable offence.

The scheme of the Income Tax Act provides for a separate machinery to try the offences under the Income Tax Act. By virtue of section 280-B

of the Act, the offences under the Act are made triable by the Special Court. Section 280-B is extracted herebelow:

280-B. Offences triable by Special Court- Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974)-

(a) the offences punishable under this Chapter shall be triable only by the Special Court, if so designated, for the area or areas or for cases or class or

group of cases, as the case may be, in which the offence has been committed:

Provided that a Court competent to try offences under Section 292-

(i) which has been designated as a Special Court under this section, shall continue to try the offences before it or offences arising under this Act after

such designation;

(ii) which has not been designated as a Special Court may continue to try such offence pending before it till its disposal;

(b) a Special Court may, upon a complaint made by an authority authorized in this behalf under this Act take cognizance of the offence for which the

accused is committed for trial.

Further, as per section 280-D of the Act, provisions of the Code of Criminal Procedure 1973 are made applicable to the proceedings before the

Special Court. Section 280-D reads:

280-D- Application of Code of Criminal Procedure, 1973 to proceedings before Special Court.-

(1) Save as otherwise provided in this Act, the provisions of the Code of Criminal Procedure, 1973 (2 of 1974) (including the provisions as to bails or

bonds), shall apply to the proceedings before a Special Court and the person conducting the prosecution before the Special Court, shall be deemed to

be a Public Prosecutor.

From the above provisions, it is clear that the offences under the Income Tax Act are triable only by the Special Court and while trying the

offences under the said Act, the Special Court is required to follow the Code of Criminal Procedure including the provisions of bail and bonds. But the

facts of the present case are entirely different. The petitioner is not sought to be prosecuted for the offence under Section 276-C of the Income Tax

Act. The records reveal that the tax liability or the evasion of the tax by the petitioner is already adjudicated by the competent authority and a

certificate has been issued under section 222 of the Income Tax Act.

The notice under Rule 73 is issued for the recovery of the tax dues determined under section 222 of the Act. It is a recovery proceeding. By the

said notice, petitioner is not sought to be prosecuted for the alleged offence under section 276-C of the Act. Therefore the contention of he petitioner

that he is apprehending his arrest in a non-bailable offence has no legs to stand. The proceedings initiated against the petitioner are akin to the

proceedings for execution of decree under Order XXI Rule 37 of CPC. Rule 4 of the Second Schedule of the Income Tax Act provides for the

various modes of recovery. As per the said provision, if the amount mentioned in the notice is not paid within the time specified therein or within such

further time as the Tax Recovery Officer may grant in his discretion, the Tax Recovery Officer shall proceed to realize the amount by one or more of

the following modes:-

 (a) by attachment and sale of the defaulter’s movable property;

 (b) by attachment and sale of the defaulter’s immovable property;

 (c) by arrest of the defaulter and his detention in prison;

(d) by appointing a receiver for the management of the defaulter’s movable and immovable properties.

The petitioner in the instant case is not an ‘offender’ but a ‘defaulter’ as defined in the Second Schedule. Part V of the Second

Schedule deals with arrest and detention of the defaulter. Rule 73 provides for issue of show cause notice. It states:

Rule 73. Notice to show cause-(1) No order for the arrest and detention in civil prison of a defaulter shall be made unless the Tax Recovery Officer

has issued and served a notice upon the defaulter calling upon him to appear before him on the date specified in the notice and to show cause why he

should not be committed to the civil prison, and unless the Tax Recovery Officer, for reasons recorded in writing, is satisfied-

(a) that the defaulter, with the object or effect of obstructing the execution of the certificate, has, after the drawing up of the certificate by the Tax

Recovery Officer, dishonestly transferred, concealed, or removed any part of his property, or

(b) that the defaulter has, or has had since the drawing up of the certificate by the Tax Recovery Officer the means to pay the arrears or some

substantial part thereof and refuses or neglects or has refused or neglected to pay the same.

(3) Where appearance is not made in obedience to a notice issued and served under sub-rule(1), the Tax Recovery Officer may issue a warrant for

the arrest of the defaulter.

Even though the petitioner has invoked the jurisdiction under section 438 Cr.P.C. on the supposition that the said notice has given rise to ‘reason

to believe’ that he would be arrested and detained by the Tax Recovery Officer, yet the following Rules completely dispels the apprehension

entertained by the petitioner. In this regard, a mere glance at Rules 74 to 76 would show that elaborate procedure has been prescribed under the

Second Schedule of the Income Tax Act regarding the arrest and detention of a defaulter. The said Rules are reproduced herebelow and they read:

Rule 74- When a defaulter appears before the Tax Recovery Officer in obedience to a notice to show cause or is brought before the Tax Recovery

Officer under rule 73, (the Tax Recovery Officer shall give the defaulter) an opportunity of showing cause why he should not be committed to the civil

person.

Rule 75- Custody pending hearing- Pending the conclusion of the inquiry, the Tax Recovery Officer may, in his discretion, order the defaulter to be

detained in the custody of such officer as the Tax Recovery Officer may think fit or release him on his furnishing security to the satisfaction of the

Tax Recovery Officer for his appearance when required.

Rule 76- Order of detention.- (1) Upon the conclusion of the inquiry, the Tax Recovery Officer may make an order for the detention of the defaulter

in the civil prison and shall in that event cause him to be arrested if he is not already under arrest:

 Provided that in order to give the defaulter an opportunity of satisfying the arrears, the Tax Recovery Officer may, before making the order of

detention leave the defaulter in the custody of the officer arresting him or of any other officer for a specified period not exceeding 15 days, or release

him on his furnishing security to the satisfaction of the Tax Recovery Officer for his appearance at the expiration of the specified period if the arrears

are not so satisfied.

(2) When the Tax Recovery Officer does not make an order of detention under sub-rule(1), he shall, if the defaulter is under arrest, direct his release.

Further Rule 86 provides for the remedy of appeal. It reads as follows, Rule 86 Appeals â€"[(1) An appeal from any original order passed by the

Tax Recovery Officer under this Schedule, not being an order which is conclusive, shall lie to the (Principal Chief Commissioner or Chief

Commissioner) or (Principal Commissioner or Commissioner)

(2) Every appeal under this rule must be presented within thirty days from the date of the order appealed against.

(3) Pending the decision of any appeal, execution of the certificate may be stayed if the appellate authority so directs, but not otherwise.

In the wake of the above provisions of the Income Tax Act and the Rules contained in the Second Schedule thereof, I do not find any justifiable

reason to hold that the petitioner has a genuine ‘reason to believe’ that he would be arrested in a non-bailable offence as contended. First and

foremost the petitioner is not accused of committing any non-bailable offence so as to invoke the jurisdiction under section 438 of Cr.P.C. Secondly,

the apprehension expressed by the petitioner is also without any basis. As could be seen from the above Rules, the proceedings are initiated against

the petitioner for recovery of the tax dues with the issuance of show cause notice as contemplated in Rule 73 of the Second Schedule. Rule 73

specifically provides that no order for the arrest and detention in a civil prison of a defaulter could be made unless the Tax Recovery Officer has

issued and served a notice upon the defaulter calling upon him to appear before him on the date specified in the notice and to show cause as to why he

should not be committed to civil prison. When a defaulter appears before the Tax Recovery Officer, he shall be given an opportunity of hearing and

only thereafter, an order could be passed for detention of the defaulter in the civil prison. Therefore, the apprehension of the petitioner that on issuance

of a show cause notice under Rule 73 of the Second Schedule of the Income Tax Act, he has a reason to believe that he would be arrested and

detained in prison is wholly misconceived and misplaced.

In the light of the above discussion, I hold that by issuance of notice under Rule 73 of the Second Schedule of the Income Tax Act, the petitioner is

not accused of committing any non-bailable offence and the said notice does not give rise to any apprehension of immediate arrest so as to invoke the

jurisdiction of the Sessions Court or High Court under section 438 of Cr.P.C. Both the constituents of section 438 of Cr.P.C. are not attracted to the

facts of this case. As a result, I hold that the petition under section 438 of Cr.P.C. is not maintainable. Consequently, the petition is liable to be

dismissed.

Accordingly, criminal petition is dismissed.