The judgment of the court was delivered by
S. K. DAS, J.---One Ranjit Singh is the petitioner before
us. The respondents are the Commissioner of Income-tax, Lucknow, the Income-tax
Officer, Lucknow, and the Collectors of three districts in Uttar Pradesh,
namely, Dehra Dun, Kanpur and Lucknow, being officers under whose orders certain
properties of the petitioner and his family have been attached in pursuance of a
notice of demand issued under section 29 of the Indian Income-tax Act, 1922, in
circumstances which we shall presently state.
The facts are shortly these : In 1948, the Central
Government referred a number of cases in which the petitioner was concerned to
the Income-tax Investigation Commission set up under the relevant provisions of
the Taxation on Income (Investigation Commission) Act, 1947 (XXX of 1947),
hereinafter referred to as the Act. On May 30, 1948, the Secretary of the
Commission issued a notice to the petitioner to furnish a list of businesses or
concerns in which the petitioner was interested and to produce the account
books, registers, etc., relating thereto. The petitioner complied with the
notice. Then, an authorised official appointed by the Commission commenced an
investigation into the cases in February, 1949, and in due course submitted a
report to the Commission. The Commission heard the petitioner and on April 16,
1949, submitted a report under section 8A(1) of the Act. The findings of the
Commission appear from the following extract from their report :
" The total tax payable on the undisclosed income up
to March 31, 1947, would accordingly be Rs. 6,61,917......
The amount of Rs. 6,61,917 may be recovered from Mr.
Ranjit Singh and from the family assets in the hands of Mr. Ranjit Singh. In
view of the admission recorded as number (iii) in paragraph 6 supra, the tax
will also be recoverable from the properties acquired between 1939 and 1947 in
the names of Mrs. Ranjit Singh and Mr. Ranjit Singh's sons, Baljit Singh and
Satendrajit Singh. In the circumstances, we recommend that no penalty be levied
on the assessee in respect of non-disclosures and false or incorrect statements
so far made either to the income-tax authorities or in the course of the present
proceedings (including those before the authorised official). Mr. Ranjit Singh
and Mr. Vaidyanatha Ayyar (representative of Mr. Ranjit Singh) have asked that
they be allowed sufficiently long time to pay up the tax. It has been
represented that out of taxes already assessed by the Income-tax Department
about Rs. 3,86,000 is still due and the addition of the amount leviable under
this report will bring the assessee's total liability to about Rs. 10 1/2 lakhs.
Mr. Ranjit Singh has asked that he may be permitted to pay up this sum in not
more than five years, in instalments of not less than a lakh of rupees at a
time. While we do not wish to go into the details of the offer, we recommended
this request for time for favourable consideration by Government. "
Then, on November 7, 1949, the petitioner, his wife and
two sons submitted a petition to the Commission in which they accepted the
findings of the Commission as correct and offered to pay the tax in instalments
in accordance with certain terms of settlement. Some of these terms are :
" We offer to pay the aforesaid amount of Rs.
6,61,917 as per the following instalments:
(1) on or before the 31st March, 1951: Rs. 1,00,000.
(2) on or before the 31st March, 1952: Rs. 2,31,000.
(3) on or before the 30th June, 1952: Rs. 3,30,917.
(4) We, however, pray that so far as the last instalment
is concerned in case we are unable to pay the same by the date mentioned above
and are able to satisfy the Central Board of Revenue that we have failed to
raise the money for reasons beyond our control and for no fault of our own, a
suitable extension of time may be granted.
(5) In respect of the other instalments, we agree that in
case of default in the payment of any one of them, the whole amount of tax
outstanding at the time shall become immediately payable. "
The report of the Commission and the terms suggested by
the petitioner for a settlement were accepted by the Central Government and an
order was passed under section 8A(2) of the Act on November 21, 1949, which
stated in its operative part that a demand notice be served immediately by the
Income-tax Officer concerned under section 29 of the Indian Income-tax Act,
1922, on the petitioner in accordance with the terms and conditions of
settlement and that all such other proceedings under the Indian Income-tax Act
or under any other law as may be necessary be taken with a view to enforce the
payment of the demand and terms and conditions of the settlement.
The respondents allege that a demand notice was
accordingly issued to the petitioner on December 2, 1949. The petitioner
alleges, however, that he received the notice in or about April, 1950, after the
Constitution of India had come into force. Thereafter, in pursuance of the
demand notice certain payments were made by the petitioner. The petitioner was,
however, unable to make full payment within the stipulated periods mentioned in
the demand notice. The result was that according to the terms of settlement the
whole amount outstanding at the time became immediately payable by the
petitioner. Then, certain properties of the petitioner and his family were
attached by the Collector of the district concerned in pursuance of the orders
received from time to time from the Income-tax Officer.
On June 8, 1959, the petitioner filed the present writ
petition challenging the legality of the demand notice dated December 2, 1949,
and the subsequent proceedings taken in pursuance of that notice. The case of
the petitioner is that after the coming into force of the Constitution of India
on January 26, 1950, the demand notice could not be given effect to and the
proceedings taken in pursuance of that notice are unconstitutional inasmuch as
they violate his fundamental rights guaranteed by the Constitution. In the
petition a reference has been made to articles 14, 31 and 19(1)(g) of the
Constitution, but the argument before us has proceeded on the contention urged
on behalf of the petitioner that there has been a violation of the fundamental
right of equal protection of the laws guaranteed to him under article 14 of the
Constitution inasmuch as he has been dealt with differently from other debtors
who owe money to the State under a contractual liability. The substantial prayer
of the petitioner is for the issuance of a writ of mandamus directing the
respondents not to give effect to the notice of demand dated December 2, 1949,
nor to take any proceedings for enforcing the terms of settlement and for
recovery of the sums specified therein.
The petition has been contested by the respondents and the
principal point taken on their behalf is that the legality of the demand notice
dated December 2, 1949, cannot be challenged by the petitioner on the strength
of the provisions of the Constitution, because the Constitution is prospective
and not retrospective; secondly, it is contended on behalf of the respondents
that the subsequent proceedings taken in pursuance of the demand notice
aforesaid do not in any way violate the right of equal protection of the laws
guaranteed under article 14 of the Constitution.
It is convenient at this stage to refer to some of the
earlier decisions of this court on the question of constitutionality of some of
the provisions of the Act. On May 28, 1954, this court delivered judgment in
Suraj Mall Mohta and Co. v. Visvanatha Sastri. It is not necessary to state the
facts of that decision. It is enough to say that it was held therein that
sub-section (4) of section 5 of the Act was bad, as it offended the provisions
of article 14 of the Constitution. Sub-section (4) of section 5 of the Act
having been declared void, Parliament passed the Indian Income-tax Amendment Act
(33 of 1954) amending section 34 of the Indian Income-tax Act, 1922. As a result
of this amendment, the validity of sub-section (1) of section 5 of the Act came
in for challenge on the ground that the Income-tax Officer could pick out some
out of the class of substantial tax evaders and refer their cases under
sub-section (1) of section 5 while dealing with other such persons under the
amended section 34 of the Indian Income-tax Act. In Shree Meenakshi Mills Ltd.
v. Visvanatha Sastri sub-section (1) of section 5 of the Act was held to be bad
on that ground. It should be noted that in none of the petitions disposed of by
that judgment had any assessment been made under the Act and this court only
prohibited further proceedings before the Commission under the Act. Finally, on
December 20, 1955, came the decision of the court in Muthiah v. Commissioner of
Income-tax. In that case, on a reference under section 5(1) of the Act, the
Commission submitted its report to Government under section 8(1) of the Act on
August 26, 1952---that is, after the coming into force of the Constitution, and
the Central Government made its order under section 8(2) of the Act on September
16, 1952. In these circumstances it was held :
" The result, therefore, is that barring the cases of
persons which were already concluded by reports made by the Commission and the
directions given by the Central Government under section 8(2) of Act XXX of 1947
culminating in the assessment or reassessment of the escaped income, those cases
which were pending on the 26th January, 1950, for investigation before the
Commission as also the assessment or reassessment proceedings which were pending
on the 26th January, 1950, before the Income-tax Officers concerned in pursuance
of the directions given by the Central Government under section 8(2) of the Act
would be hit by article 14 of the Constitution and would be invalidated. "
Lastly, came the decision in Basheshar Nath v.
Commissioner of Income-tax. That was a case of a settlement under section 8A of
the Act as in the present case, but the fact which distinguishes that case from
the present is that the settlement there was made after the commencement of the
Constitution. It was held there in that the settlement was the result of a
procedure which became discriminatory after the commencement of the Constitution
and was therefore bad, and as the discriminatory process of investigation
continued even after the commencement of the Constitution, the principle laid
down in Syed Qasim Razvi v. State of Hyderabad did not apply.
The point which requires emphasis with regard to these
earlier decisions is this: they all dealt with the operation of a discriminatory
procedure under the different provisions of the Act after the commencement of
the Constitution. The position in the case under our present consideration is
that the settlement, the order under section 8A(2) of the Act, and even the
notice of demand in pursuance of that order----all these took place before the
coming into force of the Constitution, and this vital distinction must be borne
in mind in considering the contentions urged by learned counsel for the
petitioner.
The main contention is that the proceedings taken against
the petitioner in pursuance of the order under section 8A(2) are violative of
the guarantee of equal protection of the laws under article 14 of the
Constitution. There are, however, two subsidiary contentions which do not
directly raise any question of the violation of a fundamental right, and these
may be disposed of before we deal with the main contention.
In his petition the petitioner has stated that he received
the demand notice dated December 2, 1949, in or about April, 1950. In the
counter-affidavit of the respondents it has been stated that the assessee was
informed of the demand early in December, 1949. A copy of the order of the
Central Government under section 8A(2) of the Act dated November 21, 1949, was
sent to the petitioner ; there is an endorsement in the office copy of the
demand notice dated December 2, 1949, that it was sent by registered post,
acknowledgment due. Thereafter, the petitioner paid part of the tax on different
dates without raising any objection that he had not received the demand notice
before April, 1950. It was for the first time in April, 1959, some ten years
after, that the petitioner asked for a copy of the order under section 8A(2) and
information as to the date when he had received the registered notice of demand.
He also asked for an inspection of the file. This was, however, refused. Then,
the petitioner made the statement that he had received the demand notice in or
about April, 1950. He said that the statement was based on his knowledge; he did
not disclose the source of his knowledge nor did he say how he remembered ten
years after, without reference to any documents, that he had received the demand
notice in or about April, 1950. We are unable to accept the statement as
correct. On the materials on the record it is clear that the proceedings against
the petitioner culminating in the service of the notice of demand against him
were all completed before the coming into force of the Constitution and the
petitioner cannot challenge those proceedings under article 14 of the
Constitution ; for it is well settled that the Constitution is prospective and
not retrospective.
On the construction of section 8A of the Act it has been
argued that after the order made by the Central Government under sub-section (2)
thereof, a fresh assessment was necessary and as no such assessment was made,
all subsequent proceedings for recovery of the tax are illegal. This is a point
which has not been specifically taken in the petition. That apart, we do not
think that there is any substance in this contention. We may here read section
8A, so far as it is relevant.
" 8A(1) Where any person concerned in any case
referred to or pending before the Commission for investigation applies to the
Commission at any time during such investigation to have the case or any part
thereof settled in so far as it relates to him, the Commission shall, if it is
of opinion that the terms of the settlement contained in the application may be
approved, refer the matter to the Central Government, and if the Central
Government accepts the terms of such settlement, the Commission shall have the
terms thereof recorded and thereupon the investigation, in so far as it relates
to matters covered by such settlement, shall be deemed to be closed.
(2) For the purpose of enforcing the terms of any
settlement arrived at in pursuance of sub-section (1), the Central Government
may direct that such proceedings as may be appropriate under the Indian
Income-tax Act, 1922 (XI of 1922), the Excess Profits Tax Act, 1940 (XV of
1940), or any other law may be taken against the person to whom the settlement
relates, and, in particular, the provisions of the second proviso to clause (a)
of sub-section (5) of section 23, section 24B, the proviso to sub-section (2) of
section 25A, the proviso to sub-section (2) of section 26 and sections 44 and 46
of the Indian Income-tax Act, 1922, shall be applicable to the recovery of any
sum specified in such settlement by the Income-tax Officer having jurisdiction
to assess the person by whom such sum is payable as if it were income-tax or an
arrear of income-tax within the meaning of those provisions. "
The scheme of section 8A is different from that of section
8. The latter section contemplates an assessment or reassessment in accordance
with the direction of the Central Government: see sub-section (4) of section 8.
That is not the position under section 8A, sub-section (2) whereof provides for
the enforcement of the terms of any settlement arrived at in pursuance of
sub-section (1). There is no doubt a reference to certain special provisions of
the Indian Income-tax Act, 1922, regarding assessment of partners in a
registered firm, tax payable by the representative of a deceased person, etc.;
but the reference to those provisions does not necessarily mean that a fresh
assessment must be made. They merely show that these special provisions will be
applicable in appropriate cases. Sub-section (2) ends by saying that "
sections 44 and 46 of the Indian Income-tax Act, 1922, shall be applicable to
the recovery of any sum specified in such settlement by the Income-tax Officer
having jurisdiction to assess the person by whom such sum is payable as if it
were income-tax or an arrear of income-tax within the meaning of these
provisions. " This clearly shows that the true scope and effect of the
sub-section is to enforce the terms of any settlement arrived at in pursuance of
sub-section (1) and to recover any sum specified in such settlement as if it
were income-tax or arrear of income-tax in accordance with the provisions of
sections 44 and 46 of the Indian Income-tax Act, 1922. We are unable, therefore,
to accept the construction which learned counsel for the petitioner seeks to put
on the sub-section.
This brings us to the main contention that the petitioner
has been subjected to a discriminatory procedure after the coming into force of
the Constitution by reason of section 8A(2) of the Act. Learned counsel for the
petitioner has put his argument in the following way. He has submitted that what
the petitioner agreed to pay to Government was really a debt arising out of a
contract, viz., the settlement between him and the Government, and the
petitioner is one amongst the larger class of persons who are debtors of
Government ; against all other debtors Government have the ordinary remedy by
way of suit but against the petitioner a special remedy is provided which is
more drastic and envisages the imposition of a penalty under section 46 of the
Indian Income-tax Act, 1922, if the petitioner is in default in making a payment
of the amount due. This, it is argued, is a discriminatory procedure which has
been continued even after the coming into force of the Constitution. We are
unable to accept this argument as correct. First of all, the petitioner does not
really belong to the larger class of persons whom learned counsel has
characterised as debtors of Government. The petitioner belongs to a special
class who had evaded payment of income-tax and had entered into a settlement to
pay the amount due as income-tax or arrear of income-tax. For this class of
persons the procedure laid down in section 8A(2) is one and the same, and no
discrimination is made in favour of or against any member of the same class. The
classification is a reasonable classification having a just relation to the
object of the provision. For the recovery of the amount due as income-tax or
arrear of income-tax all these persons are treated on the same footing. Neither
is there any discrimination between them and other persons similarly placed in
the matter of recovery of income-tax or arrears of income-tax. Secondly, it is
open to the Legislature to make a law as to how particular Government dues
should be realised and if the law applies equally to all persons similarly
situated, no objection can be taken to such law on the ground of discrimination.
The truth of the matter is that what the petitioner agreed to pay to Government
is really income-tax which should have been paid in regard to the relevant
assessment years but which had escaped assessment and, therefore, the recovery
is to be made according to income-tax law. That is all that section 8A(2) says.
In the decisions of this court to which we had earlier adverted, what was held
to be bad was the application of a discriminatory procedure after the coming
into force of the Constitution ; even in Basheshar Nath's case the Commission
applied the discriminatory procedure after the coming into force of the
Constitution and then submitted its report on May 24, 1954, and the Central
Government accepted the settlement on July 5, 1954. It was held that the
settlement itself was vitiated by the discriminatory procedure adopted by the
Commission. That is not the position here. In this case everything was concluded
before January 26, 1950, when the Constitution came into force, including the
issuance of a notice of demand. All that remained to be done was the recovery of
the amount according to the notice of demand. Therefore, the crucial question
is---is the recovery procedure discriminatory in any way, having regard to the
undoubted validity of the proceedings which had been taken against the
petitioner before January 26, 1950 ? We are unable to answer this question in
favour of the petitioner for the reasons which we have already stated.
Learned counsel for the petitioner relied on the decision
in Muthiah Chettiar v. Commissioner of Income-tax. The facts of that case were
entirely different and no question arose there of considering the provisions of
section 8A(2) of the Act.
For these reasons, we hold that there is no merit in the
petition which is, accordingly, dismissed with costs.
Petition dismissed
