M.CT.MUTHIAH & 2 OTHERS v. THE COMMISSIONER OF INCOME-TAX, MADRAS &, ANOTHER
Citation: [1955] 2 S.C.R. 1247; 1955 INSC 80
Court: Supreme Court of India
Bench: SUDHI RANJAN DAS , VIVIAN BOSE, NATWARLAL HARILAL BHAGWATI, B. JAGANNADHADAS, BHUVNESHWAR PRASAD SINHA
Judgment date:
Case summary
1955 INSC 80. Supreme Court of India judgment dated 1955-12-20. M.CT.MUTHIAH & 2 OTHERS v. THE COMMISSIONER OF INCOME-TAX, MADRAS &, ANOTHER. Read the...
Judgment text
2·s. c. R. SUPREME COURT REPORTS ·1247 this purpose in juxta-position with section 47 of. the Travancore Act XXIII of 1121 cannot be held to be discriminatory and violative of the fondamental right guaranteed under article 14 of the Constitution. The proceedings which took place in the course of investi- gation by the Commission up to the 26th January 1950 were valid and so also were the proceedings during. the course of investigation which took place after the inauguration of the Constitutiol). on the 26th January 1950 under which the petitioner, as a citizen of our Sovereign Democratic Republic acquired inter alia . guarantee of the fundamental right under article 14 of the Constitution. The result, therefore, is that . all the contentions urged on behalf of the petitioner fail and Civil Ap- peal No. 21 of 1954 must be ·dismissed with costs. Civil ·Appeals Nos. 21 and 22 of 1954 wil~ accord- ingly be diSlllissed with costs. There wm be a set off for costs. M. CT.
MUTHIAH & 2 OTHERS ti •. THE COMMISSIONER OF INCOME-TAX, MADRAS &, ANOTHER; [S. R. DAs~ ACTING C. J, V1vr:rn BosE, BHAcrWAn, J AGANNADHADAS and B. f. SINHA JI. ) Constitution of India, Art. ]'/--Taxation on Income (Investiga- tion Commisiion) Act, 1947 (Act XXX of 1947), s. 5(1)-'Whetil~ . ultra vires 'lhe· Constitution in vie1v of s. 34 of Indian lncome-Ta1r Act, 1922 (Act XI of 1922) as amended by the 'Income-Tax and Bu1i- ness Profits . Tax (Amendment) Act, 1948 (Act XLVlll tif 1948) and the Indian· Income-Tax (Amendment) Act, 1954 (Act X! XXW uf 1954). H~ld (Per S .. R. DAs, . A,cTING C. J. , V1v1AN iBoSE, . BHAcwATI and B. P. SINHA, JJ . . }AGANNAoHADAS J. , dissenting) that s. 5. (1) of the T elieve that by reason of the omission or failure on the part of the :assessee ........ income, profits or gains chargeable to income-tax ·have escaped assessment ........ ".
The requisites of (i) 14 definite" information (ii) which had ucome into" possession of the Income-tax Officer and in consequence of which (iii) he "dis- covers" that income, profits or gains chargeable to income-tax had escaped assessment,. were no longer necessary a. nd the only thing which was required to enable the Income-tax Officer to take proceed- ings under s. 34(1) as amended was that he should have reason to believe that by reason of the omission or_ faiiu·rc on . the part of the as! iessee income, profits qr gains chargeable to income-tax had escaped assessment for a particular year. Whereas before this amended s. 34(1) came to be substituted for the olds. 34(1) there was no com- parison between the provisions of . s. 5(1) of Act XXX of 1947 and s. 34( I) of the Indian Income-tax Act as it then stood, the provisions of s.
34(1) as amended after the 8th September 1948 could stand comparison with the provisions of s, 5(1) of Act XXX of 1947 and the cases which were covered by s. 5 ( 1) of Act XXX of 194 7 could be dealt with under the procedure laid down in s. 34(1) of the Indian Income-tax Act. After the 8th September 1948, therefore, even ·in the case of substantial evaders of income-tax who were a distinct class by themselves intended to be treated by the drastic and summary procedure laid down 1'Y Act XXX of 1947, some c:;tses that were already referred by the Central Government ! or investigation by the Comm'ission could be dealt with under that Act _arid other cases, though falling within the sam~ class or category, could be dC:alt With tinder the procedure prescribed in the amended s. 34( 1) of the Indian . Y.
ncome-~x Act; The persons who were thus dealt with under s, 34( 1) of the Indian Income-tax Act had available to them the whole oroeedure laid down· in that Act including the right to inspect document ,,. ThlCommi. si.... , of lncume-1/Jx, Madrssallii llll! lthrr . Bhtrgwati J. 1955 M. Ct. MuJhi. h and 2 others V• The Commissioner of Income-tax, MadrD> and another Bhagwati]. 1252 SUPREME COURT REPORTS [1955] alia, added sub-seetions (1-A) to (1-D) to section 34, the provisions of section 5 ( 1) of the Act became dis- criminatory, as on a reading of both the enactments, Act XXX of 1947 and the Income-tax Act as amend- ed in 1954 showed that they ~pplied to the same category of persons and there was nothing in section 5(1) of the Act or any other provision of the said Act disclosing any valid or reasonable classification. The provisions of Act XXX of 1947 could not, therefore, be sustained 011 the ground of classification to avoid the mischief of article 14 of the Constirution.
The petitioners obviously relied upon our decision in Shree Meenakshi Mill's· case, supra, in support of this con- tention. The petitioners thereafter proceeded to set out their alternative contention based upon our decision in Suraj Mall Mohta's case, supra, though it was not so stated in express terms. They contended that Act XXX of 1947 enabled the Central Government to discri. minate between one person and another inas- much as they were authorised to pick and choose cases of persons who fell within the group of those who had substantially evaded taxation on income, that the act of the Government in rekrring· some evaders to the Commission was wholly arbitrary and there was noth- ing to eliminate the possibility of a favouritism or a discrimination against an individual by sending or not sending cases to the Commission as between two persons both of whom might be within the group of those who have evaded the payment of tax to a sub- stantial extent.
They further contended that the procedure prescribed under the impugned Act was substantially more prejudicial and more drastic to the assessee than the procedure prescribed under the Indian Income-tax Act. There was no reasonableness or justification that one person should have the· advantage of the procedure prescribed by the Indian Income-tax Act while another person similarly situated should be deprived of it. They, therefore, contended that section 5(1) of the Act was discriminatory and violative of article 14 of the Constitution and asked for the issue of a writ of 2! 5. 0. Jt SUPREME COURT REPORTS 1253 rertiorari or any other appropriate writ, direction.
or order quashing the report of the Income-tax Investi- gation Commission dated the 29th August 1952 en- · closed as Annexure A to the ·petition and the assess- ment orders of the Income-tax Officer for the years 1940-41, 1941-42, and 1943-44 to 1948-49 as being unconstitutional, null and void and also of a writ of prohibition calling upon the Commissioner of Income- tax, Madras; respondent 1 and the Income-tax Officer, City Circle I, Madras, respondent 2 or their subordi- nate officers to forbear from implementing the find- ings of the Investigation Commission with regard to the year l942-43. This petition was heard a:long with Civil Appeals Nos. 21 and 22 of 1954, A. Thangal Kunju Musaliar v. M. Venkitachaalam Patti & Another and M. Venkita- Musaliar (1), which also raised inter alia the cognate question about the constitutionality of section 5 ( 1) of the Travancore Act XIV of 1124 which was in pari materia with section 5 ( 1) of Act XXX of 1947.
In regard to the question whether there is a ra- tional basis of cla~sification to be found in the enact- ment of section 5(1) of the Act, the preamble and the relevant provisions of Act XXX of 1947 are the same as were considered by us in considering this question in r~lation to the Travancore Act XIV of 1124. The words "substantial extent" also have been used in both the Acts and in the present case as in the cases of the Travancore petitioners concerned in . the Eva- sion Cases Nos. 1 and 2 of 1125 (M. E. ), Gauri Shanker, Secretary, Income-tax Investigation Commission made an affidavit dated the 21st September 1955 wherein he set out the events and circumstances under which Act XXX of 1947 came to be passed. In para- graph 4 of that affidavit he stated: "It was found that during the period of the last war large fortunes . had been made by businessmen. Controls· imposed by Government on prices and distri- bution, were · often evaded and secret profits ~re made and.
kept outside the books and often kept in- vested ia shares and real property acquired in the (I) [1955] 2 S. C. R. 1196. 1955 M. Ct; Muthiah and 2 others V• The-Commissioner of Ineome-tax, Madras and another . Bhagwati ]. 1955 M. Ct. Muthiah and 2 others V• The Commissioner of Income-tax, Madras and another BhagwatiJ. 1254 SUPREME COURT REPORTS [1955] names of benarnidars or in cash purchases of gold, silver and jewellery. The machinery of Income-tax · administration was unable to cope with the large number of complex cases that had to be dealt with, during the war years and a few years after its termi- nation. As there had been a large scale evasion of tax during this period, it became necessary in the public interests to investigate cases . of evasion of in- come-tax and bring under assessment huge profit that had escaped assessment.
As a preliminary step in this direction, a demonetisation Ordinance was passed in January 1946 sterilising the High Denomination Notes in which secret profits earned during the war years had been partly kept and calling for a statement regarding the source of such profits. This was follow- ed by the Income-tax Investigation Commission Bill. In view of the prolonged and complicated enquiries that had to be made to unearth these secret war profits and bring them under assessment a special Commission was constituted to enquire into the pro- fits made since 1939 but which had escaped assess. ment. I say that what is intended to in. ,estigate is evasion of payment of taxation which could reasonably be called "Substantial" and therefore the classification is real classification.
The statute merely leaves the selective application of the law to be made by the executive authorities in accordance with the stand- ards indicated in the Act itself" This affidavit furnished the background and the surrounding circumstances obtaining at the time when Act XXX of 1947 was enacted and if this back- ground is taken into account it would be obvious that the substantial evaders of pavment of income-tax whose cases were referred by the Central Government to the Commission formed a class by themselves and there was a rational basis of classification in the enactment of section 5 ( 1) of the Act. The argument that the terms of section 'i(l) enabled the Central Government to pi those persons whose cases had been. refeued by the Central Government for investigation by the 2 S. C. R. SUPREME COURT REPORTS 1259 Commission under section 5(1) of Act XXX of 1947. The juxta-position of dates is also very instructive.
It may be noted that in Act XXX of 1947 as it was originally enacted, the period up to which the Central Government could make the references to the Commission for investigation was laid down in section 5(1) of the Act to be 30th June 1948. This period was extended to the 1st September 1948 by the Taxa- tion on Income (Investigation Commission) Second Amendment Act, 1948 (XLIX of 1948). Act XLIX of 1948 was passed by the Central Legislature and received the assent of the Governor-General on the 8th September 1948, the s,ame day on which Act XL VIII of 1948 which amended section 34(1) of the Indian Income-tax Act also received the assent of the Governor-General. Both these Acts, viz. , Act XLVIII of 1948 and Act XLIX of 1948 were passed simultane- ously and obviously with a view to bring the provi- sions of section 5(1) of Act XXX of 1947 and section 34(1) of the Indian Income-tax Act in tune with each other.
It appears to have been realized that the substantial evaders of income-tax in respect of whom the Central Government had prim a f acie reasons for believing that they had to a substantial extent evaded payment of taxation on income could not have their cases referred for investigation by the Commission after the 30th June 1948, that having been the time limit originally prescribed in section 5(1) of the Act. It also appears to have been felt that the period could . not possibly be extended beyond the 1st September 1948 with the result that apart from the cases of sustantial evaders of income-tax which were referred by the Central Government for investi- gation to the Commission up to the 1st September 1948 there would be a large number of such cases which though they could not be referr.
ed for investi- · gation to the Commission would have to be dealt with under the ordinary provisions for taxation of income that had escaped assessment available in section 34 and the cognate sections of the Indian Income-tax Act. As section 34(1) then stood, the requisites of 25-85 S. C. India/59. 1955 M. Ct. Muthiah and 2 others V• The Commissioner of Income-tax, Madras and another Bhagwati]. I9D5 M. Ct. Muthish and 2 oth1rJ v. Tiu Commissioner of Income-tax, Madras and atroth~ Bhsgwali].
126C SUPREME COURT REPORTS [1955] definite information coming into the possession of the Income-tax Officer in consequene of which he dis- covered that income, profits or gains chargeable to income-tax had escaped assessment would certainly net have availed the Government in tracking down these substantial evaders of income-tax and it ap- pears, therefore, to have been thought necessary that section 34( I) of the Indian Income-tax Act should be amended so as to enable the Income-tax Officer to take proceedings thereunder if he had reason to beli:ve that by reason of omission or failure on the part of the assessee ........ income, profits or gains chargeable to income-tax had escaped assessment for the rele- vant period.
An amendment of section 34(1) in this manner would enable Government to pass on the re- quisite information which they had obtained in regard to the substantial evaders of income-tax to the In- come-tax Officers concerned and ask the Income-tax Officers to take proceedings against those evaders of income-tax under the amended section 34(1) of the Indian Income-tax Act. That appears to have been the real object of the amendment of section 34(1) of the Indiau Income-tax Act with effect from the 8th September 1948. The Commission would proceed with the references which were made to them up to the 1st September 1948 and the Income-tax Offi.
;ers concerned would take the requisite proceedings under section 34(1) of the Indian Income-tax Act as amend- ed after the 8th September 1948 against all persons whose income, profits or gains had escaped assessm·ent including substantial evaders of income-tax whose casrs would certainly have been referred by the Central ·Government for investigation to the Coμ1mis- sion if it had been possible for them to do so before the first September 1948.. After the 8th September 1948, there· were two procedures simultaneously in operation, the one under Act XXX of 1947 and the other under the Indian Income-tax Act with referenc. c to persons who fell within the same class or category viz~ that of the substantial evaders of income-tax. After the 8th September 1948, therefore, some persons who fell within the class of substantial evaders of 2S. C. R.
SUPREME COURT REPORTS 1261 income-tax were dealt with under the drastic and summary procedure prescribed under Act XXX of 1947, while other persons who fell within the same class of substantial evaders of income-tax could be dealt with under the procedure prescribed in the Indian Income-tax Act after service of notice upon them under the amended section 34(1) of the Act. Different persons, though falling under the same class or category of supstantial evaders of income-tax, would, therefore, be subject to different procedures, one a summary and drastic procedure and the oth~r a normal procedure which gave to the assessees various rights which were denied to those who were specially treated under the procedure prescribed in Act XXX of 1947. The l_egislative competence being there, these pro- visions, though discriminatory, could not have been challenged before the advent of the Constitution.
When, however, the Constitution came into force on the 26th January 1950, the citizens obtained the fundamental rights enshrined in Part III of the Con- stitution including the right to equality of laws. and equal protection of laws enacted in article 14 thereof, and whatever may have been the position before the 26th January 1950, it was open to the persons alleged to belong to the class of substantial evaders there; after to ask as to why some of them were subjected to the summary and drastic procedure prescribed in Act XXX of 1947 and others were subjected to the normal procedure prescribed ip section 34 and the cognate sections of the Indian Income-tax Act, the procedure prescribed in Act XXX of 1947 bemg obviously discriminatory and, therefore, violative of the fundamental right guaranteed under article 14 of the Constitution. It would be no answer to suggest that those sub- stantial evaders whose.
cases were referred by the Central Government for inves;tigation by the Com- mission before the 1st September 1948 formed a class by themselves leaving others though belonging to the same class or category of substantial evaders of 1955 M•·OI. Mrilllidh and2 othm V• Thr Go1nmwio111r of1mo~, MadrM arid anothlr Bhagwati J• 1955 M; Ct. Muthiah and 2 others v. TM Commissioner Qf Income-tax, Madras and another Bhagwati J. 1262 SUPREME COURT REPORTS [1955] income-tax to be dealt with by the ordinary procedure prescribed in the Indian Income-tax Act without infringing the fundamental right guaranteed under article 14 of the Constitution. A similar argument had been advanced before us by the learned Attorney- General appearing for the Commission in Shree Meenakshi Mills' case, supra. The ground which he had urged was "that the class of persons dealt with under section 5(1) of Act XXX.
of 1947 was not only the class of substantial tax dodgers but it was a class of persons whose cases the Central Government, by 1st September, 1948, had referred to the Commission and that class had thus become determined finally on that date, and that that clas$ of persons could be dealt with by the Investigation Commission under the drastic pz:ocedure of Act XXX of 1947 while sec- tion 34 of the Indian Income-tax Act as amended empowered the I11come-tax Officer to deal with cases other than those whose cases had been referred under section 5(1) to the Investigation Commission ...... " Mahajan, C. J. who delivered the judgment of the Court dealt with this argument at page 795 (') as under: "As regards the first contention canvassed by the learned Attorney-General it seems to us that it can- not 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 and made substantial profits and had evaded payment of tax on those profits and whose 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,, che 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 pro- cedure, leaving other tax evaders to be dealt with under the ordinary law will be a clear discrimination for the reference of the case within a particular time (! ) [1955] l $. C. R. ·787, 795. 2S. C. R. SUPREME COURT REPORTS 1263 has no special or rational nexus with · the necess. ity for drastic procedure ......
" These observations were made to repel the particular argument of the learned Attorney-General but they did not lay down that in fact section 5(1) was con- fined to such a limited class. We are further supported in this view by the fact that by the later amend111ent of section 34 of the Indian Income-tax Act effected by Act XXXIII of 1954, the· time limit for the issue of notice under sec- tion 34(1-A) of the Indian focome~tax Act has been fixed as the 31st day of March 1956. It is, therefore, clear that the period miginally fixed for the reference of the cases of substantial evaders of income-tax for investigation by the Commission, viz. , 30th June, 1948 or the extended period, viz. , 1st September, 1948 pro- vided in section 5(1) of Act XXX of 1947 or the period fixed by the new section 34(1-A) of the Indian Income-tax Act. , viz.
, 31st day of March 1956 was not a necessary attribute of the class of substantial evaders of income-tax but was merely an accident and a measure of administrative convenience and was not an element in the formation of the particular class of substantial evaders of income-tax. It follows, therefore, that after the inauguration of the C,onstitution on the 26th January, 1950, the per- sons whose cases were referred for investigation by Central Government to the Commission up to the 1st September, 1948 could, to use the words of Mahajan, C. J. in Shree Meenakshi Mills' case, supra, at page 794 ask: " ...... 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 1955 M. Ct. Muthiah and 2 others "· T ht Gommissiontr of Income-tdx, Madras and another Bhagwat. J. 1955 - M. Cl. Mulhiah ad2 oU-1 . ~. TM Commi1,;o,,,, of I11eonu-lax, Madra10nd QMJ/ur Bhagwali]. 1264 SUPREME COURT REPORTS [1955] income-tax who are to be discovered by the Income- tax Officer under the provision~ of amended section 34" .
We may also add, adopting the same phraseology, that in our judgment, no satisfactory answer can be returned to this query because the field on which the amended section 34(1) operated from and after the 26th fanuary 1950 induded the strip of territory which was also occupied by section 5 ( 1) of Act XXX of 1947 and two Siubstantially different laws of pr<>- cedure, one being more prejudicial to the assessee than the other, could not be allowed to operate on the same field in view of the guarantee of article 14 of the Constitution. · 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 re- assessment of the escaped income, those .
cases which were pending on the 26th January 1950 for investiga- tion before the Commission as also the assessment or re-assessment 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. The R. C. Cases 516, 517 and · 518 relating to M. Ct. M. Chidambaram Chettiar, M. Ct. Muthiah Chettiar and Devanai Achi were pending before the Commission on the 26th January 1950, the report therein not having been made by the Com- mission till the 26th August 1952 and the Commission had, after the 26th January 1950, no jurisdiction to complete the investigation and make their report, the whole procedure . being violative of the fundamental right guaranteed to the petitioners under article I4 of the Cons ti tu tio n.
This position was not in terms argued before us by the learned counsel for the petitioners. It Was. urged in th! ' first in;tance that the case was governed by our decision in Shree Meenakshi Mjl/s' case, supra, 011 2S. C. R. SUPREME COURT REPORTS 11. 65 the basis that by reason of the applications to the Commissioner of Income-tax, Madras, made by the pet1t10ners under section 8(5) of the Act for reference to the High Court on questions of law arising out of the Income-tax Officer'. s re-asses3ment orders above referred to, the proceedings under Act XXX of 1947 had not become final and the petitioners were, there- fore, entitled to relief on the ratio of our judgment in that case. Reliance was placed in support of this position on the provisions. of section 8(4) of the Act: "In all assessme. nt or re-assessment proceedings taken in pursuance of a direction under sub-sec- tion (2), the findings recorded by the Commission on .
the case or on the points referred to it shall, sub- ject to the provisions of sub-sections (5) and (6), be final; but no proceedings taken in pl,lTsuance of such direction shall be a bar to the initiation of proceed- ings under section 34 of the Indian Income-tax Act, 1922 (XI of 1922)". Sub-section (5) has reference to the applicacion made by the assessee to the Commissioner of Income-tax to refer to the High Court any question of law arising out of the assessment or re-'assessment orders and sub-section (6) has reference to the power of the Commission either of their own motion or on the ap- plication of the person concerned or of the Central Government to cmrect clerical or arithmetical mis- takes in their report or errors therein arising from any accidental slip or omission ........... These provi- sions contained in sub-sections (5) and (6), however, would not make the findings recorded by the Com- mission any less final.
These findings were in- vested with finality subject to this that if the High Court, on reference under sub-section (5), gave any opinion which would require a revision of those find- ings or if any clerical or arithmetical mistakes were found or errors were detected arising from accidental slip or omission within the meaning of $Uh-section (6) which also required some a iterations in the findings, these findings would be divested of their finality and would have to be revised accordingly. The' assess·· ment or re-assessment orders made by the Income- 1955 M. Ct. Muthiala llff(f 2 othet• v. The CorrrmiJsi11111r of ~w-lllx, Mllllruad antJlhtr Bha11111oli J. 1955 M. Cl. MuJhiah and 2 othlrs · v. The Commissio1t1r of Income·t~, Madras and another · Bhagwati J. 1266 SUBREME COURT REPORTS [1955} tax Officers based upon those. findings would also be binding on the assessees subject only to the result of the reference, if any, made to the High Court on questiofl.
I ()f law arising out of such orders; If this was the true position it could not be urged that by rn:J$bn of the. pendency of the applications for reference to the High Court the proceedings under Act XXX of. 1947 had not been concluded against the petitioners and it could not· also be urged that when Act XXXIII of 1954 was enacted introducing sec- tion 34(1-A) in the Income-tax Act with effect from the 19th July 1954, the R. C. Cases ·516 to 518 were pending and the whole proceedings under Act XXX of 1947 against the petitioners were invalidated.
As a matter of fact the report had been made by the Commission against the petitioners as early as the 26th August 1952, the Central Government had given the directions under sectior 8(2) for re-assessment of the petitioners on the 16th September 1952 and the re-assessment orders for all the years except the year 1942-43 had been made by the Income-tax Officer against them by the 12th May 1954 which was long before the Act XXXIII of 1954 came into operation. All these re-assessments had thus become binding on the petitioners and were not affected by the mere pendency of the applic;ations for reference to the High Court made by them to the Commissioner of lncome- tax, Madras, under section 8(5) of the Act . . There is also a further point to be considered in this c.
onnection and it is that whatever discriminatory procedure the petitioners were subjected to by reason of the reference of their cases by the Central Govern- ment to the Commission under section 5(1) of the Act had been completed long before the Act XXXI! l of 1954 came into operation and the only further proce- dure which they would be subjected under the provi- sions of Act XXX of 1947 would be that of a ref- erence to the High Court on questions of law arising out of the orders of re-assessment if these applica- tions were granted either by the Commissioner of Income-tax, Madras, or by the High Court on further application. In the event of such reference being ,_. 2S. C. R.
SUPREME COURT REPORTS 1267 made, the petitioners had the additional advantage of ·having their references heard by the High Court in a Bench constituted of not less than three Judges as contrasted with the normal procedure obtaining under seGtions 66 and 66-A of the Indian lncome-taX Act under which the references could be heard by a Division Bench of the High Court. Whatever was, therefore, the procedure to which the petitioners would be subjected under Act XXX of 1947, after the coming into operation of Act XXXIII of 1954 it was, in~tead of being prejudicial to them, really ad- vantageous to them, and following our decisions in the cases of Syed Qasim Rawi v. The State of Hydera- bad and Others(1) and Habeeb Mohamed v.
The State of Hyderabad{2), we are of the opinion that the further proceedings, if any, which could be taken under the provisions of Act XXX of 1947 would not be at all discriminatory and violative of the fundamental right guaranteed under article 14 of the Constitution. The only relief which the petitioners would have been entitled to in that event would have been one in regard to the re-assessment proceedings for the year 1942-43 which were pending before the Income- · tax Officer by . virtue of the notice under section 34 issued by him to the petitioners on the 19th March 1954. Reliance was placed up9n a decision of the Allahabad High Court reported in . Gangadhar Baij- nath and others v. Income-tax Investigation Commission, . etc. (3) in support of this position. The learned Soli- citor-General did not contest .
this position but under- took on behalf of the Income-tax authorities that they will not proceed against the petitioners for the re-assessment for the year 1942-43 in pursuance of the notice under section 34 served upon them in that behalf. This would have been the only relief to which the petitioners would have become entitled on the main contention urged by them in their petition. The petitioners are, however, entitled to succeed on the :alternative contentions which were raised by them as (! ) [1953] S. C. R. 589. (2) [1953] S. C. R. 661. ! 3) A. LR. 1955 All. 515. 1955 M~ Cl. Muthiah an1f2 o•Mr• V' T lie· Commissioner of Income-tax, Madras and another BMgwati'J. 1955 M. Ct. MuJbiaJi and 2. others v. The CommilsioM of lncomt. J4X, Madras01J4 """'"" Bhagwati ]. 1268 SUPREME COURT REPORTS [1955] the result of the conclusion whicl'.
we have reached above in regard to the proceedings pending before the Commission having become discriminatory after the 26th January 1950 by reason of, section 5 ( 1) of the A. ct having become unconstitutional after the inau- guration of the Constitution on that date. In the result, the petitioners will be entitled to the issue of a writ of certiorari quashing the report of the Income-tax Investigation Commission dated the 29th August 1952 and the ~ssessment orders of the Income- tax Officer for the years 1940-41, 1941-42 and 1943-44 to 1948-49 as being unconstitutional, null and void, and also to the issue of a writ of prohibition against the respondents from implementing the findings of the Investigation Commission referred to above with regard to the year 1942-43 and we do order that such writs do issue against the respondents accordingly. The respondents will pay the petitioners' costs of this petition. ]AGANNADHADAS J .
-This petition raises the ques- tion whether section 5(1) of the Taxation on Income (Investigation Commission) Act, 1947 (Act XXX of 1947) (here:nafter referred to as the Investigation Commission Act) is unconstitutional as offending article 14 of the Constitution and has therefore be- come void on the coming into force of the Constitu- tion ·on the 26th January, 1950. This question was specifically left open in the two previous decisions of this Court, -. ·'. z. in Suraj Mall Mohta & Co. v. A. V. Visvanatha Sastri(') and S/zree Meenakshi Mills Ltd. v. A. V. Visvanatha Sastri('). Almost the identical ques- tion arose in the Travancore Appeals(") . in which judg- ment has just now been delivered. The provision with which we were concerned in those appeals is section 5(1) of Travancore Act XIV of 1924 which is almost in identical terms as section 5(1) of the In- vestigation Commission Act. ·we have held that this section of the Travancorc Act did not, on the coming (! ) [1955] I S. C. R.
448. (2) [19. oSJ ! S. C. R. 787. (3) A. Thangal Kunju Musaliar v. Aul~orised Official, J:T. , [1955] 2 S. C. R. 1196. 25. C. R. SUPREME COURT· REPORTS 1269 into · opcraticti ' of . the, Constitution, 'Tiolate : article · , 14 therrof , and that. :it; accdrdinglr continued to ' . be valid. This rault· was· based on; the: . following. conclusions. · · (a) The: apre. ssion•. t'a. personwho. has ,fo a snl:i- stantial cxte1it;:•cva0ed payment of came . ·" "'. · . ·. ' · It was also: held, on :i. •comparison with·. section-47:. of the Travancore ·Act XXIII of. 1121; corresponding' to section. · 34 '. of·the>. Indian1·Income'. tax . :Act;• 1922,. (XI. of ·1922) as it stood 1prior to 'its',:iniendment· in•'. 1948, that .. the persons ; wbo fall under the .. class of sub-. stantiab evaders of. income-tax within the , meaning •·of section 5 ( l) · of the 1 • Investigation ·Commission cAct: were not . interided .. ,,to '' be·1and. could not have i: been ·'. :dealt with· under the'.
prcivisions ... of,isection 47 of. the T;avan. i core 'Act -. XXIIL. of,,. 1~21. and ·that I therefore: there would be no. -discriminatory· · :ipplieatiorr of: ·two parallel t:-statu:~ryg~o;~=;,'. 'c~~Lr h~~~e~:: •t~~· ~aj~rl~ ~f th~ Court has;;;taken. 1 the•. vlew~: that section:, 5(1) of. the Investigation '·'"Commission .. , Act· . his,,] :become'. uncon- stitutianal ' by' the" date of the;" Constitution' in compa-. rison ,. :·with•: 'section·;. ,34, ·of· ·the . Incotrie,taxL. -Act. as amended. in:~1 ·l948;;" Itw'as .. poirlted 1 out. • that· section· 47. of :i•the i Travancore• i Act' XXIII ·. of' 112hwhich' rwas. the same ... 'as sectionl3-Lof1•the""1ncome-tax 'Actc:•as it:stood from, 1939,, tD• 1943 ,,;did1 not'' undergo •'any·:! ' amendmmt - rd 2 •'""' ... Tu CommisJ;. ,,,,,. ofl=-taz, . &! a rd OJWl/1n jag""1U1dNiJas ]. 1955 M. Ct.
MuJhiall and 2 others V' The Commissioner of /tuom8"-tax, Mlldras and another Jagannadhadas J, ' 1270 SUPREME COURT REPORTS [1955] fore and it is said that this makes a difference. I feel constrained, howevei, with the utmost respect, to hold, on a careful ,consideration that there is no room for making any such distinction which is relevant for the purposes of this question. Undoubtedly it is true that section 34 of the Income-tax Act as it stood prior to 1948 is more restrictive i. n its operation than the same section as amended in 1948. But I am unable to see how the class falling under sec! ion 5(1) of the Investigation Commission Act is still not different from that which falls within amended section 34 of the Income-tax Act. Under section 5( I) of the Investigation Commission Act the requirement is that . the Central Government has "pr. ima fade reasons for believing that a person has to a ,substantial extent evaded payment of taxa- tion on income".
This is quite different from the criteri0n applicable under the amended section 34 of the Jn,,otne-tax Act. In the first place, section 34 of the Income-tax Act relates to cases of evasion how- ever small, while section 5(1) of the Investigation Commission Act relates only to large-scale evaders comprised within the terl}1 "substantial evasion". Secondly, the belief of the Government as to the exist- enc~ of evasion need not satisfy any rigorous standard because it need not be based on any material directly connected with the suspected evasion. It is enough if it is a "prima facie reason to believe" which having regard to the scheme of the Act would cover cases m which tell-tale appearances may call for probing and effective investigation. This may well be no more than "well-grounded reason io suspect". This is quite different from the standard to "reason to believe" required of the Income-tax Officer under section 34 of the Income-tax Act.
"Prima facie reason to believe" and "reason to believe" are as different from each other as "prim a facie proof" and "proof". therefore "reason to believe" is something definitely higher than "reason to suspect". Indeed, it is diffi- cult to compare the standards required under the two sections. Though no doubt the power exercisable by the Central Government under section 5 ( 1) of the .. 2S. C. R. SUPREME COURT REPORTS 1271 Investigation Commission Act and that exercisable by the Income-tax Officer under section 34 of the In- come-tax Act have this in common that both have reference to "reason to believe", the standard of belief and the basis of belief is expressed in such different terminology that it is not possible to compare the two and equate the two as being the same. Nor indeed can it be posited that every case of the class comprised in section 5(1) of the Investigation Commis- sion Act must necessarily fall within section 34 of the Income-tax Act.
Apart, however, from any question as to the com- parison between the two sections and as to the stand- ards and basis of the belief required, once it is accepted (as has been done in the Travancore Appeals(1) that substan'tial evasion is a definite legal standards determinative of a distinct class, it is clear that the class comprised thereunder is not identical with the class comprised under section 34 of the In- come-tax Act. In the alternative, it is a select, group of a wider class. If the smaller grouping is on a rational basis relevant to the policy of the Act, it would form a distinct class by itself for purposes of article 14. It is necessary at this stage to bear in mind the entire scope of the Investigation Commission Act in order to determine what the class is which is con- templated and covered by it. Five main features may be noticed of the scheme of the Investigation Commission . Act.
(1) It relates only to those in respect of whom the Government have "prima facie reason to believe that there has been substantial evasion of tax". (2) The belief does not result straightaway in proceedings . for reassessment (unlike under section 34 of the Income-tax Act) but the question of reassess- ment (i. e. , reopening of the assessment) depends on investigation into the correctness of that belief. The first step in the scheme is section 5(2) which contem- plates that the investigation may result in substantial ([) A. Thangal Kunju Musaliar v. Authorised Official, I. T. , [1955] 2 S. C. R. 1196. 1955 M. Ct. Muthiah and 2 others v. The CommiJSioner of Income-tax, Madras and another Jagannadhadas J. 1955 M. Ct. Muthiah and 2 other1 v. The Commissioner of Income-tax, Madras and another agannadhadas J. 1272 SUPREME COURT REPORTS [1955] evasion not being revealed. If so the further pro- ceedings would be dropped on a report by the Com- mission to that effect.
Hence no reassessment starts in such a case. (3) An effective procedure for investigation is provided to bring out all the necessary and relevant facts and material to substantiate the evasion and quantum thereof. ( 4) Proceedings for reassessment are taken on! y on the emergence of such material and on a report to that effect and that too on a further direction by the Government as to the exact nature of the proceedings to be taken and as to the exact period to be covered falling within the limits of 31st December, 1938 and 1st September, 1948. (See sections 8(2) and 5(3) of the Investigation Commission Act). (5) A reference could be made by the Gover'1ment to the Commission only up to a specified date line statutorily determined. If all these facts which are essential part of the scheme under the Investigation Commission Act are borne in mind it becomes apparent that the class contemplated under section 5(1) of the lnvestigz.
tion Commission Act for reassessment is totally different from that which could be got at either under sec- tion 34 of the Income-tax Act as it stood between 1939 and 1~48 or as it stands since 1948. One has only to compace the provisions in the Income-tax Act relating to the means by which the normal in- come-tax authorities can get information or obtain material which might lead to a reopening "of the assess- ment under section 34 of the Income-tax Act to ap- preciate that the class contemplated under section 5(1) of the Investigation Commission Act cannot be the same. The only provisions in the income-tax law for the purpose are sections 37, 38 and 39 of the Income- tax Act. The primary scheme of the Income-tax Act is that the basic materials for the assessment are ibe returns and the accounts or other evidence to be fur- nished by the 1Ssessce himself (sections 22 and 23 of the Income-ta. •: Act) or the checking material that may be availa'.
ile from the returns and the accounts 2S. C. R. SUPREME COURT REPORTS 1273 of other assessees who have transactions with this assessee. It may also consist of information received from other public authorities, etc. , as well as the examination of persons appearing to have intercon- nected transactions. The Income-tax Officer has not the power to probe into suspecious features or obtain and seize material in verification or support thereof. All that normally he can do, where there is room for grave suspicion is to reject the accounts and make his assessment on the basis of "best judgment" (see section 23(4) of the Income-tax Act) which can- not be sustained if it is a wild guess based on mere susp1C1on. Now, the whole scheme of the Investiga- tion Commission Act is obviously inspired by the realisation that the normal machinery available to the Income-tax Officer for the reassessment of large scale suppressed income is not adequate.
All the same, the Legislature realising that drastic investiga- tion into the affairs of assessees on seemingly well- grounded suspicions might . result in serious encroach- ment of personal liberties, has not chosen to vest the Income-tax Officer with any such powers of investiga- tion and has confined this drastic procedure to eva- sion of income during the period commencing 1st January, 1939 to the 1st September, 1948 ( vide sec- tions 8(2) and 5(3) of the Investigation Commission Act) and limited the same to cases of substantial evasion. In considering, therefore, what is the ambit of the class contemplated by section 5 ( 1) of the In- vestigation Commission Act, it is necessary to re- member these features of the scheme. It would fol- low that the class comprised in.
section 5(1) is the class of substantial evaders whose evasion appeared to the Government to call for a high-powered machi- nery for effective investigation, not available to an ordinary Income-tax Officer functioning under section 34 of the Income-tax Act. So understood it is quite dear, to my mind, that section 5(1) of the Investigation Commission Act relates to a class totally different from what can be brought in under section 34 of the Income-tax Act as it, either stood before; or stands after,. 1948. That this . class was 1955 M. Ct. Mitthiah arid 2 others v. The Commissioner of Income-tax, Madras and another Jagannadhadas J. 1955 M. CJ. MuJhiak and 2 others v. The Commis;ioner of Income-tax, Madras and another Jaganr. adhadas J. 1274 SUPREME COURT REPORTS [1955] really contemplated to be distinct is also indicated by the following provision of section 8(4) of the Investigation Commission Act.
"No proceedings taken in pursuance of such direction (direction made under section 8(2) for re- assessment) shall be a bar to the initiation of pm- ceedings under section 34 of the Indian Income-tax Act". This seems to indicate the possibility of concurrent assessment proceedings as against any particular as- sessee under section 34 of the Income-tax Act as also under section 8(2) of the Investigation Commission Act. The idea appears to be that section 34 proceed- ings may go on in respect of such income of the as- sessee the escaping of which comes to the knowledge of the officer by the normal procedure, and that the reassessment under the Investigation Commission Act is expected to be in respect of such evaded income which is to be discovered only as a result of regular and effective investigation.
It has been suggested in the course of arguments that no objection could be taken to Government taking only sufficient powers for investigation in appropriate cases, without any question arising as to discrimination or classification but that this cannot justify discriminatory procedure as regards actual reassessment. That raises a different aspect of the matter which will be presently dealt with. Assuming however that substantial evaders con- templated under section 5(1) of the Investigation Commission Act fall also within the larger class of evaders who fall within the class contemplated by section 34 of the Income-tax Act as it stands, what follows?
The selective group under section-5(1) of the Investigation Commission Act is determined with reference to the criteria ( 1) that they are substantial evaders of income-tax, and (2) that they are assessees within the period 1939 to 1948 which is well-known to be the period of war profits and black-marketing and in respect of whom the Government get informa- tion before 1st September, 1948, justifying investiga- tion. This is by itself a well-defined class and the • 2 S. C. 'R. SUPREME COURT REPORTS 1275 classification has a reasonable relation to the object to be achieved, viz. , the catching up of the escaped black-market war profits, for assessment. It is to be assumed that the Government would have made their references to the Investigation . Commission of all the cases of persons about whom they have the requisite belief or information before 1st September, 1948.
If there are any war profiteers of that period against whom there was no information by then and against whom information becomes available later, it will be probably found -that the information so received is not such as to enable the ordinary Income-tax Officer to rope him in. It may turn out that he has evaded once for all. But even if, in some cases, the Income- tax Officer could by the ordinary process get the es- caped income of such assessees for rea&sessment, that by itself is no ground for thinking that a classifica- tion of substantial war profiteers who have evaded iI). come-tax and against whom there was information up to a specified date is not in itself a valid classifica- tion. It is well-recognised that a classification other- wise reasonable is not invalid by reason of the classi- fication not being comprehensive. Jn Joseph Patsone v.
Commont11ealth of Pennsyl- vania (1) the Supreme Court of the United States of America laid down that- "a state may classify with reference to the evil to be prevented, and that if the class discriminated against is or . reasonably might be considered to define those from whom the evil mainly is to be feared, it properly may be picked out. A lack of abstract symmetry does not matter. The question is a practi- cal one dependent upon experience ........ It is not enough to invalidate the law that others may do the same thing and go unpunished, if, as a matter of fact, it is found that the •danger is characteristic of the class named". Again in West Coast Hotel Co. v. Ernest Parrish(') the same Court stated- "This Court has frequently held that the legisla- (1) 232 U. S. 138 144; 58 L. Ed. 539, 543. (2) 300 U. S. 379, 400; 81 L. Ed. 703, 713. 26-85 S. C. India/59 1955 M. Ct. Muthiah and 2 othm v. The Commissioner of Income-ta.
' irasand """'"" Jaganmrd/iadat J• 1284 SUPREME COURT REPORTS [1955] fact final, without pmviding for access to the regular heirarchy of appeals to the Assistant Commissioner and a Bench of two members of the Income-tax Ap- pellate Tribunal, there appears to I:.. : nothing unrea- sonable therein. On the other hand cii. ere are counter- balancing featw-es with reference to the composition of the Commission and the statutory standards by which the judicial part of its proceedings have to be governed. I am, therefore, unable to feel that the discriminati9n brought about in the procedure relat- ing ~o assessment calls for any such adverse reaction as to be. a reasonable basis for founding thereon an inference of unconstitutional inequality. However, as I have already said above, this appears to be ulti- mately a question of policy. Once the classification is found to be justified and reasonably related to the clearly under! y.
ing policy of the Investigation Commis- sion Act, I am unable to feel that section 5{1) of the Investigation Commission Act can be struck down as ultra vires in relation to its supposed concurrent operation with sectior. 34 of the Income-tax Act as ameuded in 1948, I hold, therefore, that section 5(1} of the Investigation Commission Act was not hit by article 14 of the Constitution notwithstanding amend- ment of section 34 of the Income-tale Act in 1948 and that it continued to be valid. On all other points urged on behalf of the peti- tioners, I agree with the view expressed in the judg- ment delivered by my learned brother Justice Bhag- wati on behalf of the majority of the Court. It is, therefore, unnecessary for me to deal with them. In the result, in my opinion, this petition must be dismissed with costs except as regards the incomplete reassessment for 1942-43 for which the learned Solicitor-General has given an undertaking not to proceed.
with it under the provisions of the Investiga- tion Commission Act, as stated in the judgment of my le:i. rned brnther. ORDER Bv THE CoURT : In accordance with the Judgment of the majority the petition is allowed and. it is ordered that a writ of certiorari do issue quashing the 2S. C. R. SUPREME COURT REPO~TS 1285 report of the Income-tax Investigation Commission dated the 26th August 1952 and the assessment orders of the Income-Tax Officer for the y. ears . 1940-41, 1941"42 and 1943-44 to 1948-49, and that a writ of prohibition do i$sue against the resP,ondents restrain- ing them from implementing the findings. of the In- vestigation Commission with r~g;μ-~ to the year 1942-43. The respondents do pay the peritioners' costs of their petition. AHER RAJA K. HIMA v. THE STATE OF SAURASHTRA- [VIVIAN BosE, VENKATARAMA AYYAR and CHA:NDRASEKHARA Arr AR JJ l Appeal against Acqu#tal.... -Scqpe of-PoU}ers of Court-Guiding principles-Code . of Criminal Procedure (Act V of 1898), s.
417 Pel"' BosE and OitANDRAsEKHARA A1YAll JJ, (VENKATARAMA AYYAR J. dissenting). It is well settled that the High' Court should not set aside an order of acquittal under s, 417 of the Code of Criminal Procedure simply because it differs from the trial Court as to the appreciation of the evidence ; there must be substantial and com- pelling reasons for doing so. · Whete the trial Court takes a reason- able view of the facts of the case, interference is not justifiable un- less there are really· strong reasons for holding otherwise. Amar Singh v; State of Punjab ([1953] S. C. R. 418) and Surajpal Singh v. State ( f19521 S. C. R. 193), referred t,o. The accused in a criminal case must be given the benefit of every reasonable doubt and, therefore when he offers a reasonable expla- nation of his conduct, althougl;i he cannot prove it, that explanation should ordinarily be accepted unless the circumstances indicate that it is false. Conseq11ently,.
in a case where an accused person, charged under ss. 302 and 447 of the lndian Penal Code, repudiated his confession at the earliest opportunity as having been made under Police threats administered to l>im at night while in, jail custody and there was evidence to show that the Police had access to hiru there, and there was nothing to displace his statement that he was threatened by them, the finding of the Sessions Judge that the t:onfession was not voluntary in character was fair and reasonaok and in the absence of auy compellihg reason the High Court shotild not have set aside the order of acquittal. 1955 M- Ct. Mulhiah and 2 others ·v. The' Commission. , of ltu:of/14-tax, Madras and another Jaganlladhadas J. 1955 Decmiher 22.
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