The Goa Bench of the Bombay High Court has delivered a significant judgment clarifying the scope of criminal prosecution for non-payment of income tax. In a noteworthy ruling, the Court held that mere delay in paying an admitted income tax liability does not automatically amount to a “wilful attempt” to evade tax under Section 276C(2) of the Income Tax Act, 1961.
The Court emphasized that criminal liability under the Income Tax Act arises only when there is clear evidence of a deliberate and conscious intention to evade payment. A genuine financial inability or delayed payment, by itself, cannot be treated as a criminal offence.
Background of the Case
The case arose from Criminal Writ Petition No. 202 of 2026, filed by Dinar Tarcar Resources (India) Pvt. Ltd., its Managing Director, and its Joint Managing Director. The petitioners challenged a criminal complaint filed by the Income Tax Department under Section 276C(2) of the Income Tax Act, along with the order of the Chief Judicial Magistrate issuing criminal process against them.
The prosecution alleged that the company had deliberately failed to pay its admitted income tax liability relating to Assessment Year 2012-13, thereby committing an offence of wilful tax evasion.
The petitioners, however, argued that the delay in payment was not intentional. According to them, the company had suffered severe financial difficulties following the suspension of mining operations in Goa, which adversely affected its cash flow and ability to discharge its tax dues on time.
They further pointed out that the entire outstanding tax demand, together with applicable statutory interest, had subsequently been paid. After full payment, the Income Tax Department itself issued a Nil Dues Certificate, acknowledging that no tax liability remained outstanding.
Interpretation of Section 276C(2)
Justice Amit S. Jamsandekar examined the language of Section 276C(2), which criminalises a wilful attempt to evade payment of tax, penalty or interest.
The Court observed that the legislature deliberately used the word “wilful”, which introduces an essential mental element into the offence. Consequently, prosecution under this provision requires proof of mens rea, meaning a guilty intention or deliberate state of mind.
According to the Court, a person can be prosecuted only when the evidence establishes that he or she intentionally, consciously and deliberately attempted to avoid payment of lawful tax dues.
The judgment makes it clear that the provision does not cover situations involving:
- Genuine financial hardship;
- Accidental or unintentional default;
- Casual delay in payment; or
- Mere inability to pay within the prescribed time.
Therefore, simple delay in payment, without evidence of deliberate evasion, cannot attract criminal prosecution.
Reliance on Supreme Court Precedent
While interpreting the expression “wilful”, the Bombay High Court relied upon the Supreme Court’s decision in S. Sundaram Pillai v. V.R. Pattabiraman.
The Supreme Court had earlier explained that the word “wilful” signifies an act done intentionally, knowingly and with full awareness of its consequences. Applying the same principle, the High Court held that the expression “wilful attempt” in Section 276C(2) necessarily imports the requirement of mens rea.
Thus, criminal prosecution cannot be based merely on delayed payment of admitted tax unless there is convincing material demonstrating a conscious effort to defeat recovery of tax.
Complaint Must Contain Specific Allegations
The Court also reiterated an important principle governing criminal prosecutions under penal statutes.
Since Section 276C(2) creates a criminal offence carrying penal consequences, every essential ingredient of the offence must be specifically pleaded in the complaint.
Merely reproducing the statutory language or making a bald allegation that the accused “wilfully attempted to evade tax” is insufficient.
The complaint must clearly disclose:
- the specific acts constituting the alleged evasion;
- the circumstances demonstrating deliberate conduct; and
- material showing the existence of guilty intention.
Without such particulars, criminal prosecution cannot be sustained.
Conduct of the Taxpayer Was Bona Fide
After examining the facts, the Court found that the petitioners’ conduct did not indicate any intention to evade payment.
Instead, the record showed that the company had:
- continuously made payments towards the outstanding demand;
- repeatedly requested additional time to clear the dues;
- paid statutory interest on delayed payment; and
- eventually discharged the entire tax liability.
The Court also noted that, immediately before filing of the complaint, only about ₹26.08 lakh remained unpaid out of the total demand, and even this balance was cleared shortly thereafter.
These circumstances demonstrated bona fide efforts to satisfy the tax demand rather than any deliberate attempt to avoid payment.
Mechanical Issuance of Criminal Process Disapproved
The High Court further criticised the approach adopted by the Chief Judicial Magistrate while issuing process.
Relying upon the Supreme Court’s landmark decision in Pepsi Foods Ltd. v. Special Judicial Magistrate, the Court observed that issuing criminal process is a serious judicial function and cannot be performed mechanically.
Before summoning an accused, the Magistrate must independently examine whether the complaint discloses all the essential ingredients of the alleged offence.
In the present case, the Court found that the Magistrate had failed to undertake this exercise and had issued process merely on the basis of vague allegations.
High Court Quashes Criminal Proceedings
Finding that the complaint failed to establish the essential ingredients of Section 276C(2), the Bombay High Court quashed both:
- the criminal complaint filed by the Income Tax Department; and
- the order of the Chief Judicial Magistrate issuing criminal process.
The Court held that continuation of the prosecution would serve no useful purpose because the complaint lacked specific allegations establishing a wilful attempt to evade payment of tax.
Key Takeaways
This judgment provides valuable guidance on the scope of criminal prosecution under the Income Tax Act.
The ruling makes it clear that:
- Mere delay in payment of admitted tax does not amount to criminal tax evasion.
- Proof of mens rea is an essential requirement for prosecution under Section 276C(2).
- Genuine financial hardship and bona fide efforts to clear tax dues cannot be equated with deliberate tax evasion.
- Complaints under penal provisions must contain specific factual allegations demonstrating intentional misconduct.
- Courts must carefully scrutinise complaints before allowing criminal prosecution to proceed.
The decision reinforces the principle that criminal law should be invoked only in cases involving conscious and deliberate wrongdoing, and not where taxpayers have merely experienced financial difficulty or temporary inability to discharge their tax liabilities.
Case Details
- Case Title: Dinar Tarcar Resources (India) Pvt. Ltd. & Ors. v. The Income Tax Department
- Case Number: Criminal Writ Petition No. 202 of 2026
- Court: Goa Bench of the Bombay High Court
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Judge: Justice Amit S. Jamsandekar