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PETITIONER: RANJIT SINGH

       Vs.

RESPONDENT: THE COMMISSIONER OF INCOME-TAX, U. P. AND OTHERS.

DATE OF JUDGMENT: 14/04/1961

BENCH: DAS, S.K. BENCH: DAS, S.K. AIYYAR, T.L. VENKATARAMA KAPUR, J.L. HIDAYATULLAH, M. SHAH, J.C.

CITATION:  1962 AIR   92            1962 SCR  (1) 966

ACT: Income   Tax   Evasion   of   Taxation-Case   referred    to Investigation   Commission-Settlement  of   Case-Notice   of demand--Commencement   of   Constitution-Recovery   of   tax thereafter-Legality-Taxation   on   Income    (Investigation Commission)  Act,1947 (30 of 1947), ss.  8,8-A--Constitution of India, Art.14.

HEADNOTE: In 1948 the Central Government referred a number of cases in which the petitioner was concerned, to the Income-tax Inves- tigation Commission set up under the relevant provisions  of the Taxation on Income (Investigation Commission) Act, 1947. After  the Commission had submitted the report under  s.  8- A(1)  of  the  Act, in which the total tax  payable  on  the undisclosed  income upto March 31, 1947, was estimated,  the petitioner applied for a settlement of his case by  offering to  pay the amount of tax in instalments and by agreeing  to pay  the  whole  amount immediately in case  of  default  in payment  of  any of the instalments in  time.   The  Central Government  accepted the terms suggested by  the  petitioner and  passed an order on November, 21, 1949, under s.  8-A(2) of  the Act directing the service of a demand notice on  the petitioner  and recovery of the tax in accordance  with  the terms  and  conditions of the settlement.   On  December  2, 1949,  a notice of demand was issued to the petitioner  who, in  pursuance  thereof, made certain payments.  But  as  the petitioner  was  unable  to make  full  payment  within  the stipulated  periods,  the whole  amount  outstanding  became immediately payable and certain properties belonging to  him and  his  family  were  attached by  the  Collector  of  the district Concerned for the recovery of the amount.  On  June 8, 1959, the petitioner filed a writ petition tinder Art. 32 of the Constitution of India challenging the legality of the demand  notice  dated December 2, 1049, and  the  subsequent proceedings taken in pursuance of that notice on the  ground that  after  the coming into force of  the  Constitution  of India  on  January  26, 1950, they  were  violative  of  the fundamental right of equal protection of the laws guaranteed

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under  Art.  14, inasmuch as what he had agreed to  pay  the Government as a result of the settlement was really a  debt, and  he had been dealt with differently from  other  debtors who owed money to the State under a contractual liability. Held,  (1) that the proceedings against the petitioner  cul- minating 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 967 Art. 14 of the Constitution, because it is well settled that the Constitution is prospective and not retrospective; (2)  that the true scope and effect of sub-s. (2) of s.  8-A is  to  enforce the terms of any settlement  arrived  at  in pursuance  of sub-s. (1), which was really income-tax  which had escaped assessment; (3) that the petitioner belonged not to the larger class  of debtors  of  Government  but to a special  class  which  had evaded  payment of income-tax for which the  procedure  laid down  in  s.  8-A(2)  was one and the  same,  and  that  the classification  being reasonable having a just  relation  to the  object of the provision, the recovery procedure  cannot be challenged as discriminatory under Art. 14. Suraj  Mail  Mohta and Co. v. A. V.  Visvanatha  Sastri  and Another, [1955] 1 S.C.R.448, M. CT.  Muthiah & two Others v. The  Commissioner of Income-tax, Madras & Another, [1955]  2 S.C.R.  1247  and  Basheshar Nath  v.  The  Commissioner  of Income-tax,  Delhi & Rajasthan and Another, [1959]  Supp.  1 S.C.R. 528, distinguished.

JUDGMENT: ORIGINAL JURISDICTION: Writ Petition No. 85 of 1959. Writ Petition under Art. 32 of the Constitution of India for the enforcement of fundamental rights. A.  V.  Viswanatha  Sastri,  R. S.  Pathak,  S.  N.  Andley, Rameshwar Nath and P. L. Vohra, for the petitioner. K.  N. Rajagopala Sastri and D. Gupta, for respondents  Nos. 1 and 2. 1961.  April 14.  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  s. 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 968 of  the Taxation on Income (Investigation  Commission)  Act, 1947 (Act 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  Autho- rised  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

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heard  the  petitioner and on April 16,  1949,  submitted  a report  under  s. 8-A(1) of the Act.  The  findings  of  the Commission  appear  from the following  extract  from  their report:               "The total tax payable on the undisclosed  in-               come upto 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 para  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 10 1/2  lakhs. Mr.  Ranjit Singh has asked that he may be permitted to  pay up this sum in not 969               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 recommend 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:               "3.  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 s. 8-A(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

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Officer concerned under s. 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.               122 970 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 Art. 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 971 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 Art.  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  con. stitutionality of some of the provisions of the Act.  On May 28, 1954, this Court delivered judgment in Suraj Mall  Mohta and  Co. v. A. V. Visvanatha Sastri and Another (1).  It  is not  necessary to state the facts of that decision.   It  is enough to say that it was held therein that sub-s. (4) of s. 5 of the Act war, bad, as it offended the provisions of Art. 14 of the Constitution.  Sub-section (4) of s. 5 of the  Act

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having  been  declared void, Parliament  passed  the  Indian Income-tax Amendment Act (33 of 1954) amending s. 34 of  the Indian Income-tax Act, 1922.  As a result of this amendment, the  validity of sub-s. (1) of s. 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-s. (1) of s. 5 while dealing with  other such persons under amended s. 34 of  the  Indian Income-tax  Act.  In Shree Meenakshi Mills Ltd., Madurai  V. A. V. Viswanatha Sastri and Another(2), sub-s. (1)’ of s. 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 this Court in M. CT.  Muthiah  &  two Others  v. The Commissioner of Income-tax, Madras &  Another (3).  In that case, on a reference under B. 5(1) of the Act, the Commission submitted its report to Government under (1) [1955] 1 S.C.R. 448.      (2) [1955] 1 S.C.R. 787. (3) [1935] 2 S.C.R. 1247. 972 s.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 s. 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 the 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.   The Commissioner  of Income-tax, Delhi & Rajasthan  and  Another (1).   That was a case of a settlement under s. 8-A  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  therein  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. The State  of  Hyderabad  and Others (2 ) 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 s. 8-A(2) of the  Act,  and even  the notice of damaged in pursuance of  that  order-all these took (1) [1959] Supp. 1 S.C. R.  528. (2) [1953] S.C.R. 589.

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973 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 s. 8-A(2) are violative  of the guarantee of equal protection of the  laws under Art. 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  s. 8-A(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 s. 8-A(2) and information  as to the date when he had received the  regis- tered notice of demanad.  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  in  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 974 before  the  coming into force of the Constitution  and  the petitioner cannot challenge those proceedings under Art.  14 of  the  Constitution;  for  it is  well  settled  that  the Constitution is prospective and not retrospective. On the construction of s. 8-A of the Act it has been  argued that  after the order made by the Central  Government  under sub-s. (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 s. 8-A, so far as it is relevant:               "S. 8-A. (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

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             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  2 6               and  sections 44 and 46 of the Indian  Income-               tax Act, 1922 shall be applicable to 975               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               arrears  of income-tax within the  meaning  of               those provisions." The  scheme  of s. 8-A is different from that of s.  8.  The latter section contemplates an assessment or reassessment in accordance with the direction of the Central Government; see sub-s.  (4) of s, 8. That is not the position under s.  8-A, sub-s. (2) whereof provides for the enforcement of the terms of  any settlement arrived at in pursuance, of  sub-s.  (1). There is Do 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-s. (2) ends by saying that "ss. 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  arrears 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-s. (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 ss. 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 s. 8-A(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 976 debt arising out of a contract viz., the settlement  between him  and  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

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imposition of a penalty under s. 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 s. 8-A(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 pro-vision.  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 call 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 s. 8-A(2) says.  In the decisions of this Court to which we bad earlier adverted, what was held to be bad was 977 the  application  of a discriminatory  procedure  after  the coming  into force of the Constitution;. even  in  Basheshar Nath’s  case (1) 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  con- cluded  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 M.  L.  M. Muthiah Chettiar and Others  v.  Commissioner  of Income-tax,  Madras  (2).   The  facts  of  that  case  were entirely   different   and  no  question  arose   there   of considering the provisions of s. 8-A (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. (1) [1959] SUPP. 1 S.C.R. 528. (2) [1959] 35 I.T.R. 339. 123 978

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