PETITIONER:
THE STATE OF BOMBAY
Vs.
RESPONDENT:
BHANJI MUNJI AND ANOTHER.OCTOBER 12, 1954.[MEHR CHAND MH
DATE OF JUDGMENT:
21/10/1954
BENCH:
BOSE, VIVIAN
BENCH:
BOSE, VIVIAN
MAHAJAN, MEHAR CHAND (CJ)
MUKHERJEA, B.K.
JAGANNADHADAS, B.
AIYYAR, T.L. VENKATARAMA
CITATION:
1955 AIR 41 1955 SCR (1) 777
CITATOR INFO :
RF 1956 SC 294 (3,11)
F 1957 SC 521 (6,7)
D 1960 SC1080 (27)
F 1960 SC1203 (10,11,13)
F 1961 SC1381 (10)
RF 1962 SC1006 (78,79)
R 1963 SC 151 (21,22)
F 1966 SC 882 (9,14,15,32)
R 1966 SC1788 (17,18)
O 1970 SC 564 (54,55,152,153,154)
D 1972 SC2656 (11)
RF 1973 SC 974 (9,10)
RF 1973 SC1461 (1525)
R 1978 SC 597 (189)
MV 1982 SC1325 (80)
F 1984 SC 866 (4)
ACT:
Constitution of India, Art. 14-Taxation on Income
(Investigation Commission) Act, 1947 (XXX of 1947), s.
5(1)--Whether ultra vires the Constitutions. 5(1) of Act XXX
of 1947 and Indian Income-tax Act, (XI of 1922), s. 34 as
amended by Indian Income-tax (Amendment) Act, 1954-whether
cover the same field-Discriminatory procedure before the
date of Constitution and after the date of Constitution-
Validity thereof.
HEADNOTE:
Parliament by amending s. 34 of the Indian Income tax
Act, 1922, by passing the Indian Income-tax (Amendment) Act
(XXXIII of 1954) has now provided that oases of those very
persons who originally fell within the ambit of s. 5(1) of
Taxation on Income (Investigation Commission) Act, 1947 (XXX
of 1947) and who, it
788
was alleged, formed a distinct class, can be dealt with
under the amended s. 34 and under the procedure provided in
the Indian Income-tax Act. Both categories of persons,
namely, those who came within the scope of s. 5(1) as well
as those who came within the ambit of s. 34, now form one
class.
Held, that after the coming into force of the Indian
Income-tax (Amendment) Act, 1954 (XXXIII of 1954) which
operates on the same field as s. 5(1) of Act XXX of 1947 the
provisions of s. 5(1) of Taxation on Income (Investigation
Commission) Act, 1947 (XXX of 1947), assuming they were
based on a rational classification, have become void and
unenforceable as being discriminatory in character.
Article 14 of the Constitution not only guarantees
equal protection as regards substantive laws but procedural
laws as well.
When an Act is valid, in its entire by before the date
of the Constitution the part of the proceedings regulated by
the special procedure and taken during the pre-Constitution
period cannot be questioned however discriminatory it may
have been but the discriminatory procedure after the coming
into force of the Constitution cannot be continued.
Suraj Mal Mohta v. Sri A. V. Viavanatha Sastri (A.I.R.
1954 S.C. 545), Keshava Madhava Menon v. The State of Bombay
[1951] S.C.R. 228), Lachmandas Kewalram Ahuja and Another v.
The State of Bombay ([1962] S.C.R. 710), Syed Qasim Razvi v.
State of Hyderabad ([1953] S.C.R. 589) and Habeeb Mohammad
v. State of Hyderabad ([1953] S.C.R. 661) referred to.
JUDGMENT:
ORIGINAL JURISDICTION: Petitions Nos. 330 to 333 of
1954.
Under article 132 of the Constitution of India for the
enforcement of Fundamental Rights.
P.B. Das, (B. Sen, Balaprasad Singh and Ganpat Rai, with
him) for the petitioner.
M. C. Setalvad, Attorney-General for India, and C. A.
Daphtary, Solicitor-General for India (O. N. Joshi, Porus
A. Mehta and P. G. Gokhale, with them) for the respondents.
1954. October 21. The Judgment of the Court was delivered
by
MEHR CHAND MAHAJAN C.J.-Writ Petitions Nos. 330 to 333
of 1954, though presented by different persons, raise
identical questions for consideration and decision and can
be conveniently disposed of by one judgment.
789
In April, 1947, Taxation on Income (Investigation
Commission) (Act, 1947, Act XXX of 1947) was passed by the
Central Legislature. By section 3 of the Act the Central
Government was empowered to constitute an Income-tax
Investigation Commission for investigating matters relating
to taxation on income with particular reference to the
question whether the existing law was adequate for
preventing the evasion thereof. Section 5(1) of the Act
further empowered the Central Government to make a reference
by the 30th June, 1948, to the Commission for investigation
and report of any cases wherein it had prima facie reason
for believing that a person had, to a substantial extent,
evaded payment of taxation on income. The date for making
the reference was subsequently extended to 1st of September,
1948. By an Amendment Act passed in 1948 it was provided
that the life of the Commission, in the first instance,
would be up to the 31st of March, 1950, but that it could be
further extended to 31st of March, 1951. By subsequent
legislations the life of the Commission has been extended to
December, 1955.
The procedure prescribed by the Act for making the
investigation under its provisions is of a summary and
drastic nature. It constitutes a departure from the
ordinary law of procedure and in certain important aspects
is detrimental to the persons subjected to it and as such is
discriminatory. The substantial differences in the normal
procedure of the Income-tax Act for catching escaped income
and in the procedure prescribed by Act XXX of 1947, were
fully discussed by this Court in Suraj Mal Mohta v. Sri A.
V. Visvanatha Sastri(1) and require no further discussion
here.
Sub-section (4) of section 5 of the Act provided that
the Central Government could refer to the Commission cases
of persons other than those whose cases had been referred to
it by the 1st of September, 1948, under section 5(1) if,
after investigation, the Commission made a report to that
effect. Thus, two categories of oases under Act XXX of 1947
could be referred to the Investigation Commission by the
Central Government,
(1) (1955] 1 S.C.R. 448.
101
790
namely, those falling under section 5(1) and those falling
under section 5(4) of the Act.
In accordance with the provisions of section 5(1) of
the Act the Central Government on the 31st of December,
1947, referred to the Investigation Commission the cases of
the four petitioners for investigation and report. It is
alleged by each of these petitioners that no action was
taken by the Commission on these references during the
original period of its life or even during the extended
period provided by the Amendment Act of 1948. If a report
had been submitted in these cases during the original period
of the life of the Commission, the problems that now arise
would not have arisen, because the Act being a pre-
Constitution Act was good law before the Constitution and
acts done thereunder before the commencement of the
Constitution could not be impugned on the basis of the
provisions of Part III of the Constitution which came into
force on the 26th January, 1950. Those provisions had no
retrospective operation and could not affect the validity of
this law or the completed proceedings taken thereunder. Be
that as it may, it appears that nothing happened in these
cases till January, 1952, when it is alleged an official of
the Commission summoned the petitioners for a preliminary
discussion which took place in February, 1952, and since
then the petitioners have from time to time been called upon
to produce a number of statements and books of account, but
the investigation has not proceeded beyond the preliminary
stages and the Commission itself has admittedly not
commenced any proceedings in these cases, though a period of
nearly seven years has elapsed since the references were
made, with the result that subsequent events have intervened
and, in our opinion, have made these references to the
Commission abortive.
As already stated, the Constitution of India came into
force on the 26th January, 1950, and the pre-Constitution
laws had then to stand the test for their validity on the
provisions of Part III of the Constitution. Article 14 of
this Part guarantees to all persons the right of equality
before the law and equal protection of the laws within the
territory of India. This article not
791
only guarantees equal protection as regards substantive laws
but procedural laws also come within its ambit. The
implication of the article is that all litigants similarly
situated are entitled to avail themselves of the same
procedural rights for relief, and for defence with like
protection and without discrimination. The procedural
provisions of Act XXX of 1947 had therefore to stand the
challenge of article 14 and could only be upheld provided
they withstood that challenge. The question was canvassed
in this Court in April, 1954, in Suraj Mal Mohta v. Sri A.
V. Visvanatha Sastri (supra). What happened in that case
was that the Investigation Commission, while dealing with
the case of another assessee referred to it under section
5(1) of the Act, reported to the Central Government that
Suraj Mal Mohta and other members of the family had evaded
income-tax and their cases should be referred to it under
the provisions of sub-section (4) of section 5. The
reference was accordingly made with the result that Suraj
Mal Mohta applied to this Court under article 32 for an
appropriate writ restraining the Commission from taking any
action against him under the provisions of Act XXX of 1947.
It was there contended that the provisions of sections 5(1),
5(4), 6, 7 and 8 of the Act had become void after the coming
into force of the Constitution, being discriminatory in
character, and that these provisions contravened the
guarantee of article 14 of the Constitution. This Court
upheld this contention and granted an appropriate writ to
Suraj Mal Mohta. It there expressed the opinion that sub-
section (4) of section 5, on its plain reading, was not
limited to cases of persons who, to a substantial extent,
had evaded taxation but that it dealt with all those persons
whose cases fell within the ambit of section 34 of the
Indian Income-tax Act, and that being so, there was no
justification for discriminating them in matters of
procedure from those dealt with under the Indian Income-tax
Act, and thus sub-section (4) of section 5 was hit by
article 14 of the Constitution and was void and
unenforceable. The result of this decision was that the
Commission was restrained from dealing with Mohta’s case.
The provisions of section 5(1)
792
of the Act were also attacked in that case as contravening
article 14 of the Constitution, but the Court refrained from
expressing any opinion about their constitutionality as that
question had no relevancy then. The consequence of that
decision was that a certain provision of Act XXX of 1947 was
declared void and unenforceable to the extent of its
repugnancy to the provisions of Part III of the Constitution
under article 13(1) thereof Its validity however during the
pre-Constitution period was beyond question.
What this Court said in its judgment in Suraj Mal Mohta
v. Sri A. V. Visvanatha Sastri (supra) has perhaps resulted
in the filing of these petitions which were presented to
this Court on the 16th of July, 1954, after the decision in
that case had been pronounced. In the petitions, as
originally drafted, the provisions of section 5(1) of Act
XXX of 1947 were impugned on the ground that they
contravened the guarantee of equal protection of the laws
enacted in article 14 of the Constitution and for that
reason the Commission had no jurisdiction to deal with the
cases of the petitioners by applying the discriminatory and
drastic procedure of the impugned Act. It was alleged that
the petitioners belonged to the same class of persons as
were dealt with under the ordinary law enacted in section 34
of the Indian Income-tax Act. Before these petitions could
come to a hearing and a day after they were presented to
this Court, the Indian Income-tax (Amendment) Ordinance VIII
of 1954 was promulgated by the President and this was
subsequently made into an Act on the 25th of September,
1954. The Indian Income-tax (Amendment) Act, XXXIII of
1954, though assented to by the President on the 25th of
September, 1954, came into force with effect from the 17th
of July, 1954. The provisions of this Act furnished an
additional ground of attack to the petitioners on the
continuance of proceedings by the Commission in these cases
under the provisions of Act XXX of 1947. An application was
therefore made seeking permission to, urge additional
grounds. This was not opposed by the learned Attorney-
General and was allowed. In the additional grounds it was
urged that the relevant
793
sections of Act XXX of 1947, which affected the petitioners,
had been impliedly repealed by the amended Act of 1954 and
ceased to have any legal force and that the Commission could
no longer proceed under those provisions against the
petitioners. It was further contended that the amended
section 34 of the Indian Income-tax Act was comprehensive in
its scope, and all persons that were dealt with under
section 5(1) of Act XXX of 1947 had been brought within its
ambit, and that being so, there was no basis left for giving
them discriminatory or special treatment different from
those similarly situated, and who were to be dealt with
under section 34 of the Indian Income-tax Act as amended.
It was said that assuming but without admitting that section
5(1) of Act XXX of 1947 was based on a rational
classification and was not hit by article 14 of the
Constitution because of that circumstance, it had now,
because of the amendment in section 34 of the Income-tax
Act, become void, as the classification which saved it from
the mischief of article 14 if at all, had become
ineffective, its distinctive characteristics having
disappeared, and that the persons falling within the class
defined in section 5(1) now belong to the same class as is
dealt with by section 34 as amended.
Two questions were thus canvassed before us:
(1) Whether section 5(1) of Act XXX of 1947 infringes
article 14 of the Constitution inasmuch as it is not based
on a rational classification ?
(2)Whether, after the coming into force of the Indian
Income-tax (Amendment) Act, 1954, which operates on the same
field as section 5.(1) of Act XXX of 1947, the provisions of
section 5(1) of Act XXX of 1947, assuming they were based on
a rational classification, have not become void and
unenforceable, as being discriminatory in character.?
In our opinion, for the purpose of deciding these
petitions, it is not necessary to express any opinion on the
first question because we think the second contention is
well founded and is sufficient to determine the case in
favour of the petitioners.
The provisions of section 15(1) of Act XXX of 1947 could
only be supported, if at all, for a differential
794
treatment of persons dealt with in that section in matters
of procedure, on the ground that these persons constituted a
separate class, and the classification was rational.
Parliament has, however, by amending section 34 of the
Indian Income-tax Act, now provided that cases of those very
persons who originally fell within the ambit of section 5(1)
of Act XXX of 1947, and who it was alleged formed a distinct
class, can be dealt with under the amended section 34 and
under the procedure provided in the Income-tax Act. Both
categories of persons, namely, those who came within the
scope of section 5(1) as well as those who came within the
ambit of section 34, now form one class. In other words,
substantial tax-dodgers or war profiteers who were alleged
to have formed a definite class according to the contention
of the learned AttorneyGeneral under section 5(1), and whose
cases needed special treatment at the hands of the
Investigation Commission, now clearly fall within the ambit
of amended section 34 of the Indian Income-tax Act. That
being so, the only basis for giving them differential
treatment, namely, that they formed a distinct class by
themselves, has completely disappeared, with the result that
continuance of discriminatory treatment to them comes within
the mischief of article 14 of the Constitution and has thus
to be relieved against. All these persons can now well ask
the question, why are we now being dealt with by the
discriminatory and drastic procedure of Act XXX of 1947 when
those similarly situated as ourselves can be dealt with by
the Income-tax Officer under the amended provisions of
section 34 of the Act. Even if we once bore a distinctive
label that distinction no longer subsists and the label now
borne by us is the same as is borne by persons who can be
dealt with under section 34 of the Act as amended; in other
words, there is nothing uncommon either in properties or in
characteristics between us and those evaders of income-tax
who are to be discovered by the Income-tax Officer under the
provisions of amended section 34. In our judgment, no
satisfactory answer can be returned to this query because
the field on which amended section 34 operates
795
now includes the strip of territory which previously was
occupied by section 5(1) of Act XXX of 1947 and two
substantially different laws of procedure, one being more
prejudicial to the assessee than the other, cannot be
allowed to operate on the same field in view of the
guarantee of article 14 of the Constitution.
The learned Attorney-General attempted to combat this
contention on a two-fold ground: (1) That the class of
persons dealt with under section 5(1) of Act XXX of 1947 was
not only the class of substantial taxdodgers but it was a
class of persons whose cases the Central Government, by 1st
of September, 1948, had referred to the Commission and that
class had thus become determined finally on that date, and
that that class of persons could be dealt with by the
Investigation Commission under the drastic procedure of Act
XXX of 1947, while section 34 of the Indian Income-tax Act
as amended empowered the Incometax Officer to deal with
cases other than those whose cases had been referred under
section 5(1) to the Investigation Commission : (2) That in
any case the proceedings having started before the
Commission in pursuance of the reference under section 5(1)
of Act XXX of 1947 those proceedings cannot be affected by
the amendment, it having no retrospective operation.
Both these contentions, in our opinion, are not well
founded.
As regards the first contention canvassed by the learned
Attorney-General it seems to us that it cannot stand
scrutiny. The class of persons alleged to have been dealt
with by section 5(1) of the impugned Act was comprised of
those unsocial elements in society who during recent years
prior to the passing of the Act had madesubstantial profits
and had evaded payment of tax on those profits those cases
were referred to the Investigation Commission before 1st
September, 1948. Assuming that evasion of tax to a
substantial amount “could form a basis of classification at
all for imposing a drastic procedure on that class, the
inclusion of only such of them whose cases had been referred
before 1st September, 1948, into a class for being dealt
with by the drastic procedure, leaving other tax evaders
796
to be dealt with under the ordinary law will be a clear
discrimination for the reference of the case within a
particular time has no special or rational nexus with the
necessity for drastic procedure. Further it seems that this
very class of persons is now included within the ambit of
the amended section 34 of Act XXXIII of 1954. The draftsman
of this section has apparently attempted to remedy whatever
defects in the classification made under section 5(1) of Act
XXX of 1947 had been pointed out during the discussion in
Suraj Mal Mohta’s case in this Court. The preamble of the
Act states that the Act is intended to provide for
assessment or reassessment of persons who to a substantial
extent had evaded payment of tax during a certain period and
for matters connected therewith. The language employed here
bears close likeness to that employed in section 5(1) of the
impugned Act. The Act has inserted the following sub-
section in section 34 of the Indian Income-tax Act :
” (I-A) If, in the case of any assessee, the Income. tax
Officer has reason to believe-
(i)that income, profits or gains chargeable to income-
tax have escaped assessment for any year in respect of which
the relevant previous year falls wholly or partly within the
period beginning on the 1st day of September, 1939, and
ending on the 31st day of March, 1946; and
(ii)that the income, profits or gain which have so
escaped assessment for any such year or years amount or are
likely to amount to one lakh of rupees or more; he may,
notwithstanding that the period of eight years or, as the
case may be, four years specified in subsection (1) has
expired in respect thereof, serve on the assessee a notice
containing all or any of the requirements which may be
included in a notice under sub-section (2) of section 22,
and may proceed to assess or reassess the income, profits or
gains of the assessee for all or any of the years referred
to in clause (1) and thereupon the provisions of this Act
shall, so far as may be, apply accordingly
It was argued in Mohta’s case as well as in these
petitions that the classification made in section 5(1) of
797
the impugned Act was bad because the word “substantial” used
therein was a word which had no fixed meaning and was an
unsatisfactory medium for carrying the idea of some
ascertainable proportion of the whole, and thus the
classification being vague and uncertain, did not save the
enactment from the mischief of article 14 of the
Constitution. This alleged defect stands cured in the
amended section 34 inasmuch as the Legislature has clearly
indicated in the statute what it means when it says that the
object of the Act is, to catch persons who to a substantial
extent had evaded payment of tax, in other words, what was
seemingly indefinite within the meaning of the word
“substantial” has been made definite and clear by enacting
that no evasion below a sum of one lakh is within the
meaning of that expression. Again, the classification of
section 5(1) was criticized on the ground that it did not
necessarily deal with persons who during the period of war
had made huge profits and evaded payment of tax on them.
The amendment made in section 34 has remedied this defect
also. The amended section clearly states that the amended
section will operate on income made between the 1st
September, 1939, and the 31st March, 1946, and tax on which
has been evaded. It is thus clear that the new sub-section
inserted in section 34 by the provisions of Act XXXIII of
1954 is intended to deal with the class of persons who were
said to have been classified for special treatment by
section 5(1) of Act XXX of 1947. The learned Attorney-
General frankly conceded that to a certain extent the two
sections overlapped, but he urged that the overlapping was
not complete and that those remained still outside it whose
cases had already been referred to the Investigation
Commission. We are unable to uphold this contention in view
of the clear language employed in the amended Act and this
contention is therefore negatives.
The second contention raised by the learned Attorney-
General is, in our opinion, concluded by a number of earlier
decisions of this Court wherein it has been held that when
an Act is valid in its entirety before the date of the
Constitution, the part of the proceedings regulated by the
special procedure and
102
798
taken during pre-Constitution period cannot be questioned
however discriminatory it may have been, but that if the
discriminatory procedure is continued after the date of the
Constitution, then a person pre-judicially affected by it
can legitimately ask why he is now being differently treated
from others similarly situate-vide Kesava Madhaya Menon v.
The State of Bombay(1), and Lachmandas Kewalram Ahuja and
Another v. The State of Bombay(2). The same propositions
were re-stated by this Court in Syed Qasim Razvi v. State of
Hyderabad(1), and in Habeeb Mohammad v. State of
Hyderabad(1). In the cases of these petitioners, as already
pointed out, the proceedings taken by the Investigation
Commission against them under the discriminatory procedure
of the impugned Act against them have not been com. pleted
and are pending and that being so, no justification remains
for continuing these proceedings against them under the
procedure of the impugned Act when other persons of their
class and having the same common characteristics can be
dealt with by the Income-tax Officer under the provisions of
the amended Act and the procedure of the ordinary law of the
land.
For the reasons given above we are of the opinion
that assuming the provisions of section 5(1) of Act XXX of
1947 could be-saved from the mischief of Article 14 of the
Constitution on the basis of a valid classification, that
defence is no longer available in support of it after the
introduction of the new sub-section in section 34 of the
Income-tax Act, which sub-section is intended to deal with
the same class of persons dealt with by section 5(1) of the
impugned Act. The result is that proceedings before the
Investigation Commission can no longer be continued under
the procedure prescribed by the impugned Act. We ‘therefore
direct that an appropriate writ be issued against the
Commission prohibiting it from proceeding further with the
cases of these petitioners under the provisions of Act XXX
of 1947. In the peculiar circumstances of this case we make
no order as to costs in these petitions.
Writ issued.
(1) [1951] S.C.R. 228. (3) [1953] S.C.R. 589
(2) (1952] S.C,R, 710 (4) [1953] S.C.R. 661,
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