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PETITIONER: M.CT. MUTHIAH & 2 OTHERS

       Vs.

RESPONDENT: THE COMMISSIONER OF INCOME-TAX, MADRAS & ANOTHER.

DATE OF JUDGMENT: 20/12/1955

BENCH: BHAGWATI, NATWARLAL H. BENCH: BHAGWATI, NATWARLAL H. DAS, SUDHI RANJAN BOSE, VIVIAN JAGANNADHADAS, B. SINHA, BHUVNESHWAR P.

CITATION:  1956 AIR  269            1955 SCR  (2)1247

ACT:   Constitution   of  India,  Art.  14-Taxation   on   Income (Investigation  Commission) Act, 1947 (Act XXX of 1947),  s. 5(1)-Whether  ultra vires the Constitution in view of s.  34 of  Indian Income-Tax Act, 1922 (Act XI of 1922) as  amended by the Income-Tax and Business Profits Tax (Amendment)  Act, 1948  (Act  XLVIII  of  1948)  and  the  Indian   Income-Tax (Amendment) Act, 1954 (Act XXXIII of 1954).

HEADNOTE:    Held  (Per S. R. DAs, ACTING C.J., VIVIAN BOSE,  BHAGWATI and  B.P. SINHA, JJ.  JAGANNADHADAS J., dissenting) that  s. 5(1)  of the Taxation on Income  (investigation  Commission) Act, 1947 (Act XXX of 1947) is ultra vires the  Constitution as  it  is discriminatory and violative of  the  fundamental right guaranteed by Art. 14 of the Constitution by reason of two  amendments  which  were made in s.  34  of  the  Indian Income-Tax  Act,  1922 (Act XI of 1922) one in 1948  by  the enactment of the Income-Tax and Business Profits Tax 1248 (Amendment) Act, 1948 (Act XLVIII of 1948) and the other  in 1954  by the enactment of the Indian Income-Tax  (Amendment) Act, 1954 (Act XXXIII of 1954).    If  the provisions of s. 34(1) of the  Indian  Income-tax Act  as it stood before its amendment by Act XLVIII of  1948 had  been  the only provisions to be considered,  the  Court would  have  reached  the same conclusion as it  did  in  A. Thangal  Kunju  Musaliar v. M. Venkitachalam Potti  &  Anr., ([1955]  2  S.C.R. 1196), but the  position  was  materially affected by reason of two amendments made in that section by two Acts, one in 1948 and the other in 1954.     Amended  s.  34(1)  of the  Indian  Income-tax  Act  was substantially  different from the old s. 34(1) which was  in operation  up to the 8th September 1948.  The words  "if  in consequence of definite information which has come into  his possession  the  lncome-tax.Officer discovers  that  income, profits  or  gains  chargeable to  income-tax  have  escaped assessment in any year.............. which appear in the old section  were  substituted by the words "if  the  Income-tax

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Officer has reason to believe that by reason of the omission or  failure on the part of the assessee............  income, profits  or gains chargeable to income-tax have escaped  The requisites  of  (i)"definite" information (ii) which  had  " come  into"  possession  of the Income-tax  Officer  and  in consequence  of  which  (iii) he  "discovers"  that  income, profits  or  gains  chargeable  to  income-tax  bad  escaped assessment,  were  no longer necessary and  the  only  thing which was required to enable the Income-tax Officer to  take proceedings  under  S. 34(1) as amended was that  he  should have  reason  to believe that by reason of the  omission  or failure on the part of the assesses income, profits or 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 old s. 34(1) there was  no  com- parison between the provisions of s. 5(1) of Act XXX of 1947 and s. 34(1) 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 1947 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 by Act XXX of  1947, some  cases  that  were  already  referred  by  the  Central Government  for  investigation by the  Commission  could  be dealt  with under that Act and other cases,  though  falling within the same class or category, could be dealt with under the  procedure  prescribed in the amended s.  34(1)  of  the Indian Income-tax Act.  The persons who were thus dealt with under s. 34(1) of the Indian Income-tax Act had available to them the whole procedure laid down in that Act including the right  to  inspect documents and the right to  question  the findings of fact arrived at 1249 by  the  Income-tax Officer by the procedure of  appeal  and revision  and ultimate scrutiny by the Income-tax  Appellate Tribunal  which was denied to those persons whose cases  had been referred by the Central Government for investigation by the Commission under s.5(1) of Act XXX of 1947.    Different persons, though falling under the same class or category  of  substantial  evaders  of  income-tax,   would, therefore, be subject to different procedures, one a summary and drastic procedure and the other 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.   Per JAGANNADHADAS J.-The class of persons falling under S. 5(1)  of the Taxation on Income  (Investigation  Commission) Act,  1947 (Act XXX of 1947) is totally different from  that which  falls within-amended s. 34 of the  Indian  Income-Tax Act  1922 (Act XI of 1922) and therefore s. 5(1) of Act  XXX of 1947 is not unconstitutional as offending Art. 14 of  the Constitution.   Suraj Mall Mohta v. A. V. Visvanatha Sasttrii and  Another ([1955]  1 S.C.R. 448), Shree Meenakshi Mills Ltd. v. A.  V. Visvanatha  Sastri  and Another ([1955] 1  S.C.R.  787),  A. Thangal Kunju Musaliar v. M. Venkitachalam Potti & Anr.  and M. Venkitachalam Potti & Anr. v. A. Thangal Kunju  Musaliar, ([1955]  2  S.C.R. 1196), Syed Qasim Bazvi v. The  State  of Hyderabad and Others ([1953] S.C.R. 581), Habeeb Mohamed  v. The  State  of Hyderabad ([1953] S.C.R. 661)  and  Gangadhar Baijnath and others v. Income-tax Investigation  Commission,

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etc. (A.I.R. 1955 All. 515), referred to.

JUDGMENT:   ORIGINAL JURISDICTION: Petition No. 646 of 1954.    Petition under Article 32 of the Constitution of India.     C.    R.  Jagadisan, Naunit Lal and T. V.  Balakrishnan, (T.  V. Balakrishnan, with the permission of the court)  for the petitioners.    C.     K.  Daphtary, Solicitor-Genral of India,  (G.   N. Joshi, B. Ganapathy lyer and R. H. Dhebar, with him) for the respondents.   1955.  December 20.    BHAGWATI  J.-This  petition  under  Article  32  of   the Constitution   also   raises   the   question   about    the constitutionality of section 5(1) of the Taxation on  Income Investigation Commission Act, 1947 (XXX of 1947). 1250 The  facts which led to the filing of this petition  may  be shortly stated.   Sir M. Ct.  Muthiah Chettiar who carried on a  flourishing banking  business in India and foreign countries died in  or about   1929  leaving  behind  him  two  sons  M.  Ct.    M. Chidambaram Chettiar (since deceased) and M. Ct.  M. Muthiah Chettiar, petitioner 3, and his widow Devanai Achi.  M.  Ct. M.  Chidambaram  Chettiar continued  the  ancestral  banking business  and also started several  commercial  enterprises. He  died  by an accident while traveling in a plane  in  the year 1954 leaving behind him his two sons, the petitioners 1 & 2. Devanai Achi had predeceased him.  The petitioners 1  & 2  are the legal representatives of the deceased M. Ct.   M. Chidambaram  Chettiar and also the representatives of  their grandmother Devanai Achi.   The  Central Government, in exercise of its  powers  under section 5(1) of Act XXX of 1947, referred to the  Income-tax Investigation  Commission  R.  C.  Nos.  516,  517  and  518 relating  to  M. Ct.  M. Chidambaram Chettiar,  M.  Ct.   M. Muthiah  Chettiar,  petitioner  3, and  Devanai  Achi.   The Commission, after holding an enquiry in all the three cases, recorded  their findings and held that an aggregate  sum  of Rs. 10,07,322-4-3 represented the undisclosed income  during the  investigation period and directed distribution of  this sum  over the several years in the manner indicated by  them in Schedule A to their report.  This report was submitted by the  Commission to the Government on the 26th  August  1952. The Central Government considered the report and, purporting to act under section 8(2) of the Act directed by their order No.  74  (26)  I.T./52 dated the 16th  September  1952  that appropriate action under the Indian Income-tax Act be  taken against the assessees with a view to assess or re-assess the income which had escaped assessment for the years 1940-41 to 1948-49.   In  pursuance  of  the  said  directions  of  the  Central Government  the Income-tax Officer, City Circle  1,  Madras, issued notices under section 34 of the Indian Income-tax Act and made the reassessment for the 1251 years 1940-41, 1941-42 and 1943-44 to 1948-49 based upon the findings  of the Commission which were treated as final  and conclusive.   The assessment orders for the  years  1940-41, 1941-42 and 1948-49 were served on the assessees on the 20th February  1954.  Assessment orders for the years 1943-44  to 1947-48 were served on the 12th May 1954.  There  assessment order  for  the year 1942-43 was -Dot  made  though  notices

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under  section  34  of the Indian Income-tax  Act  had  been issued  by the Income-tax Officer on the assessees   on  the 19th  March  1954.   It  appears  that  these  re-assessment proceedings  for  the year 1942-43 are yet  pending  and  no assessment order in respect of that year has yet been served on the petitioners.   In  regard to the assessment orders which were  served  on the  20th  February 1954, the petitioners preferred  on  the 18th  May 1954 applications to the Commissioner  of  Income- tax, Madras, under section 8(5) of the Act for references to the High Court on questions of law arising out of those  re- assessment orders passed by the Income-tax Officer.  Similar applications were preferred thereafter in respect of the re- assessment  orders which were served on the  petitioners  on the 12th May 1954.  These applications are still pending.   On  the  6th  December 1954,  the  petitioners  filed  the present  petition contending that the provisions of the  Act XXX  of 1947 were illegal, ultra vires and  unconstitutional mainly  on  the  ground  that they  were  violative  of  the fundamental  right  guaranteed  under  article  14  of   the Constitution.   The  grounds urged in support of this contention were  not felicitously  expressed.   The petitioners  appear  to  have mixed up the contentions which could be urged as a result of our judgments in Suraj Mall Mohta v. A. V. Visvanatha Sastri and  Another(1)  and  Shree Meenakshi Mills Ltd.  v.  A.  V. Visvanatha  Sastri  and Another(2).  They contended  in  the first instance that after the amendment of section 34 of the Indian Income-tax Act by Act XXXIII of 1954, which inter  (1)[1955] 1 S.C.R. 448. 158    (2) [1955] 1 S.C.R. 787. 1252 alia,  added sub-sections (1-A) to (1-D) to section 34,  the provisions of section 5(1) of the Act became discriminatory, as on a reading of both the enactments, Act XXX of 1947  and the  Income-tax  Act  as amended in 1954  showed  that  they applied  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 on the ground of  classification to  avoid  the mischief of article 14 of  the  Constitution. The petitioners obviously relied upon our decision in  Shree Meenakshi Mill’s case, supra, in support of this contention.    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 discriminate between one  person  and another inasmuch 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 referring some evaders to the Commission  was wholly  arbitrary  and there was nothing  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 prejuducial  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.

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  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 1253 certiorari or any other appropriate writ, direction or order quashing   the  report  of  the   Income-tax   Investigation Commission dated the 29th August 1952 enclosed as Annexure A to the petition and the assessment 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 1, Madras, respondent 2 or their subordinate officers to   forbear   from  implementing  the   findings   of   the Investigation Commission with regard to the year 1942-43.     This petition was heard along with Civil Appeals Nos. 21 and   22   of  1954,  A.  Thangal  Kunju  Musaliar   v.   M. Venkitachalam  Potti & Another and M. Venkitachalam Potti  & Another  v. A. Thangal Kunju 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  rational basis  of  classification to be found in  the  enactment  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 relation 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 Evasion Cases Nos.  I 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 paragraph 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 distribution, were often evaded  and  secret profits were made and kept  outside  the books  and often kept invested in shares and  real  property acquired in the  (1) [1955] 2 S.C.R. 1196. 1254 names of benamidars 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  termination.  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 followed by the Income-tax  Investigation Commission  Bill.  In view of the prolonged and  complicated enquiries  that bad to be made to unearth these  secret  war profits and bring them under assessment a special Commission was constituted to enquire into the profits made since  1939 but  which  had  escaped assessment.  I  say  that  what  is intended  to investigate is evasion of payment  of  taxation which could reasonably be called "Substantial" and therefore

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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 standards 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 background is  taken  into account it would be obvious that the substantial evaders  of payment  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 5(1) enabled  the Central   Government  to  pick  and  choose  the  cases   of particular individuals falling within that category  leaving the cases of other persons falling within the same  category to be dealt with in accord- 1255 ance  with  the provisions of section 34(1)  of  the  Indian Income-tax  Act as it stood prior to the amendment  of  1948 has  been already dealt with in our judgment in  A.  Thangal Kunju  Musaliar v. M. Venkitachalam Potti & Another,  supra, while  dealing with the corresponding provisions of  section 5(1) of the Travancore Act XIV of 1124 and section 47 of the Travancore Act XXIII of 1121 and we have pointed out that so far  as the Indian Income-tax Act as it was in existence  on the 18th April 1947 (which was the date on which Act XXX  of 1947  received  the assent of  the  Governor-General)  stood unamended  by Act XLVIII of 1948, the cases of  persons  who fell within the category of substantial evaders of incometax within the meaning of section 5(1) of the Act could not have been dealt with under the provisions of section 34(1) of the Indian   Income-tax  Act  and,  therefore,  there   was   no discrimination  and  no violation of the  fundamental  right guaranteed under article 14 of the Constitution.    The  other  argument that the selection  of  the  persons whose  cases were to be referred by the  Central  Government for investigation to the Commission was left to the unguided and   uncontrolled  discretion  of  the  executive  or   the administrative  officials also has been dealt with  in  that judgment  and we need not repeat our reasons  for  rejecting the same.    If the provisions of section 34(1) of the Indian  Income- tax  Act as it stood unamended by Act XLVIII of 1948  (which corresponded  with  the  provisions of  section  47  of  the Travancore  Act XXIII of 1121) had been the only  provisions to  be considered we would have reached the same  conclusion as we did in A.     Thangal    Kunju    Musaliar    v.    M. Venkitachalam Potti& Another, supra.  The position, however, in the present case is materially affected by reason of  the two  amendments which were made in section 34 of the  Indian Income-tax  Act, one in 1948 by the enactment of Act  XLVIII of 1948 and the other in 1954 by the enactment of Act XXXIII of 1954.   Section 34 as amended by Act XLVIII of 1948 read as under; 1256 "Section 34 (1): If-   (a)     the Income-tax Officer has reason to believe  that by  reason  of  the omission or failure on the  part  of  an assessee to make a return of his income under section 22 for any  year or to disclose fully and truly all material  facts necessary for his assessment for that year, income,  profits or  gains chargeable to income-tax have  escaped  assessment for  that year, or have been under-assessed or  assessed  at too low a, rate, or have been made the subject of  excessive

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relief  under  the Act, or excessive  loss  or  depreciation allowance has been computed, or    (b)    notwithstanding that there has been no omission or failure  as  mentioned  in clause (a) on  the  part  of  the assessee,  the  Income-tax  Officer has  in  consequence  of information in his possession reason to believe that income, profits  or  gains  chargeable to  income-tax  have  escaped assessment  for  any year, or have been  under-assessed,  or assessed at too low a rate, or have been made the subject of excessive  relief under this Act, or that excessive loss  or depreciation  allowance has been computed, he may in cases falling under clause (a) at any time  within eight  years  and in cases falling under clause (b)  at  any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer  thereof,  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  re- assess  such income, profits or gains or recompute the  loss or  depreciation allowance; and the provisions of  this  Act shall, so far as may be, apply accordingly as if the  notice were a notice issued under that sub-section: Act  XXXIII of 1954 introduced into section 34  sub-sections (1-A)  to (1-D).  Section 34(1-A) which is material for  our purposes provided: "Section  34  (1-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 1257 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 gains 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 sub-section  (1) has  expired in respect thereof, serve on the assessee,  or, if  the  assessee  is a company, on  the  principal  officer thereof, 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  re-assess  the income,  profits or gains of the assessee for all or any  of the  years  referred  to in clause (i),  and  thereupon  the provisions of this Act (excepting those contained in clauses (i) and (iii) of the proviso to sub-section (1) and in  sub- sections  (2) and (3) of this section) shall, so far as  may be, apply accordingly:   Provided  that- the Income-tax Officer shall not  issue  a notice  under  this sub-section unless he has  recorded  his reasons  for doing so, and the Central Board of  Revenue  is satisfied on such reasons recorded that it is a fit case for the issue of such notice: Provided  further that no such notice shall be issued  after the 31st day of March, 1956". Amended  section  34(1)  of the Indian  Income-tax  Act  was substantially different from the old section 34(1) which was in operation up to the 8th September 1948.  The words "if in consequence -of definite information which has come into his possession  the  Income-tax Officer discovers  that  income, profits  or  gains  chargeable to  income-tax  have  escaped assessment  in  any year " which appear in the  old  section were substituted by the words "If the Incometax Officer  has

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reason to believe 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 1258 requisites  of (i) "definite" information (ii) which  had  " come  into"  possession  of the Income-tax  Officer  and  in consequence  of  which  (iii) he  "discovers"  that  income, profits  or  gains  chargeable  to  income-tax  had  escaped assessment,  were  no longer necessary and  the  only  thing which  was required to enable the Incometax Officer to  take proceedings  under  section  34(1) as amended  was  that  he should have reason to believe that by reason of the omission or  failure on the part of the assessee income,  profits  or gains chargeable to income-tax had escaped assessment for  a particular year.  Whereas before this amended section  34(1) came  to be substituted for the old section 34(1) there  was no comparison between the provisions of section 5(1) of  Act XXX  of 1947 and section 34(1) of the Indian Income-tax  Act as it then stood, the provisions of section 34(1) as amended after the 8th September 1948 could stand comparison with the provisions of section 5(1) of Act XXX of 1947 and the  cases which were covered by section 5(1) of Act XXX of 1947  could be dealt with under the procedure laid down in section 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 by Act XXX of 1947, some cases that were already referred by the  Central Government for investigation by the  Commission could  be dealt with under that Act and other cases,  though falling  within the same class or category, could  be  dealt with  under the procedure prescribed in the amended  section 34(1)  of the Indian Income tax Act.  The persons  who  were thus dealt with under section 34(1) of the Indian  Incometax Act  had available to them the whole procedure laid down  in that  Act including the right to inspect documents  and  the right  to  question the findings of fact arrived at  by  the Income-tax  Officer by the procedure of appeal and  revision and  ultimate scrutiny by the Income-tax Appellate  Tribunal which  was  denied  to those persons whose  cases  had  been referred by the Central Government for investigation by the 1259 Commission under section 5(1) of Act XXX of 1947.   The  juxtaposition 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 Taxation   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 same day on  which Act XLVIII 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  simultaneously   and obviously  with  a view to bring the provisions  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  prima  facie reasons for believing that they had to a substantial  extent evaded  payment of taxation on income could not  have  their

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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 substantial 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 referred for investigation 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 159 1260 definite  information  coming  into the  possession  of  the Income-tax  Officer  in consequence of which  be  discovered that  income, profits or gains chargeable to income-tax  had escaped  assessment  would certainly not  have  availed  the Government  in  tracking down these substantial  evaders  of income-tax  and it appears, therefore, to have been  thought necessary  that section 34(1) 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 believe 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 relevant  period. An  amendment of section 34(1) in this manner  would  enable Government  to pass on the requisite information which  they had obtained in regard to the substantial evaders of income- tax to the Income-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 Indian  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  Officers concerned would take the requisite proceedings under section 34(1) of the Indian Income-tax Act as amended after the  8th September 1948 against all persons whose income, profits  or gains  had escaped assessment including substantial  evaders of income-tax whose cases would certainly have been referred by  the Central Government for investigation to the  Commis- 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 reference 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 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 substantial evaders of income-tax, would, therefore, be subject to different procedures, one  a summary  and  drastic  procedure  and  the  other  a  normal procedure  which gave to the assessees various rights  which

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were  denied to those who were specially treated  under  the procedure prescribed in Act XXX of 1947.    The legislative competence being there, these provisions, 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 Constitution 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 thereafter 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 in section 34  and the cognate sections of the Indian  Income-tax  Act, the procedure prescribed in Act XXX of 1947 being  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  substantial evaders whose cases were referred by the Central  Government for investigation by the Commission before the 1st September 1948  formed  a class by themselves  leaving  others  though belonging  to  the  same class or  category  of  substantial evaders of 1262 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  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 Income-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(1) as under:   "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 made substantial profits and  bad  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,  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  to be  dealt  with  under  the ordinary law  will  be  a  clear discrimination  for  the  reference of  the  case  within  a particular time  (1) [1955] 1 S.C.R. 787, 795. 1263

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has  no  special or rational nexus with  the  necessity  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 confined to  such  a limited class.   We are further supported in this view by the fact that  by the  later amendment of section 34 of the Indian  Income-tax Act  effected by Act XXXIII of 1954, the time limit for  the issue of notice under section 34(1-A) of the Indian  Income- tax  Act has been fixed as the 31st day of March  1956.   It is,  therefore, clear that the period originally  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., I St 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 Constitution  on the 26th January, 1950, the  persons  whose cases were referred for investigation by Central  Government to  the Commission up to the 1st September, 1948  could,  to use the words of Mabaian C.   J.  in Shree  Meenakshi  Mills case, supra, at page 794ask: "........    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 1264 income-tax who are to be discovered by the Incometax Officer under the provisions 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 January 1950 included  the strip  of territory which was also 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, 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 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.  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

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report  therein not having been made by the Commission  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 14 of the Constitution.   This  position  was not in terms argued before us  by  the learned  counsel for the petitioners.  It was urged  in  the first instance that the case was governed by our decision in Shree, Meenakshi Mills’ case, supra, on 1265 the  basis  that  by  reason  of  the  applications  to  the Commissioner of Income-tax, Madras, made by the  petitioners 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-assessment  orders  above  referred  to,   the proceedings  under Act XXX of 1947 had not become final  and the  petitioners were, therefore, 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 assessment or re-assessment proceedings taken  in pursuance of a direction under sub-section (2), the findings recorded  by  the Commission on the case or  on  the  points referred  to  it shall, subject to the  provisions  of  sub- sections (5) and (6), be final; but no proceedings taken  in pursuance of such direction shall be a bar to the initiation of  proceedings  under section 34 of the  Indian  Income-tax Act,1922 (XI of 1922)".   Sub-section (5) has reference to, the application 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 application of the person concerned or  of the  Central Government to correct clerical or  arithmetical mistakes in their report or errors therein arising from  any accidental  slip or omission.............. These  provisions contained  in sub-sections (5) and (6), however,  would  not make  the findings recorded by the Commission any  the  less final.   These findings were invested 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  findings  or  if  any  clerical  or  arithmetical mistakes  were  found or errors were detected  arising  from accidental  slip  or  omission within the  meaning  of  sub- section  (6)  which also required some  alterations  in  the findings, these findings would be divested of their finality and would have to be revised accordingly.  The assessment or re-assessment orders made by the Income- 1266 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  questions  of law arising out of such orders.   If this was the true position, it could not be urged  that by reason 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  section  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

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petitioners  as early as the 26th August 1952,  the  Central Government had given the directions under section 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  applications for  reference  to  the  High Court  made  by  them  to  the Commissioner of Incometax, Madras, under section 8(5) of the Act.  There  is  also a further point to be  considered  in  this connection and it is that whatever discriminatory  procedure the petitioners were subjected to by reason of the reference of  their cases by the Central Government to the  Commission under section 5(1) of the Act had been completed long before the  Act  XXXIII of 1954 came into operation  and  the  only further  procedure which they would be subjected  under  the provisions  of Act XXX of 1947 would be that of a  reference to  the  High Court on questions of law arising out  of  the orders  of re-assessment if these applications 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 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 sections 66 and 66-A of the  Indian Income-tax Act under which the references  could be beard 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, instead  of  being prejudicial  to  them,  really  advantageous  to  them,  and following our decisions in the cases of Syed Qasim Razvi  v. The  State of Hyderabad and Others(1) and Habeeh 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 Incometax Officer by virtue of  the notice under section 34 issued by him to the petitioners  on the 19th March 1954.  Reliance was placed upon a decision of the Allahabad High Court reported in Gangadhar Baijnath  and others  v. Income-tax Investigation Commission,  etc.(3)  in support of this position.  The learned Solicitor-General did not  contest  this position but undertook 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 (1) [1953] S.C.R. 589.           (2) [1953] S.C.R. 661. (3) A.I.R. 1955 All. 515. 160

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1268 the result of the conclusion which 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   Act   having   become unconstitutional    after    the   inauguration    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 assessment orders of the Incometax 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 ear 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.  JAGANNADHADAS J.-This petition raises the question  whether section  5(1)  of  the  Taxation  on  Income  (Investigation Commission)  Act,  1947  (Act  XXX  of  1947)   (hereinafter referred   to  as  the  Investigation  Commission  Act)   is unconstitutional as offending article 14 of the Constitution and  has therefore become void on the coming into  force  of the  Constitution on the 26th January, 1950.  This  question was specifically left open in the two previous decisions  of this  Court,  viz.  in  Suraj Mall Mohta  &  Co.  v.  A.  Y. Visvanatha Sastri(1) and Shree Meenakshi Mills Ltd. v. A. V. Visvanatha  Sastri(2).  Almost the identical question  arose in the Travancore Appeals(3) in which judgment 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  Investigation Commission Act.  We have held  that  this section of the Travancore Act did not, on the coming (1) [1955] 1 S.C.R. 448.      (2) [1955] 1 S.C.R. 787. (3) A.  Thangal Kunju Musaliar Y. Authorised Official, I. T. [1955] 2 S.C.R. 1196. 1269 into  operation  of  the Constitution,  violate  article  14 thereof and that it accordingly continued to be valid.  This result was based on the following conclusions.   (a)     The expression "a person who has to a  substantial extent  evaded  payment  of taxation on income"  has  to  be interpreted   having  regard  to  the  background   or   the circumstances that preceded at the time the section came  to be  enacted and which were disclosed in the affidavit  filed in  this  Court  by  the  Secretary  of  the   Investigation Commission   and  so  interpreted  the  word   "substantial" indicates  with  reasonable certainty the class  of  persons intended  to  be subjected to the drastic procedure  of  the Act.   (b)     The selective application of the law to persons in this class cannot be considered invalid since the  selection is  guided  by the very objective set out  in  section  5(1) itself   (c)     The  fact  that some persons may  escape  the  ap- plication  of the law is not necessarily destructive of  the efficacy of the provision.   It  was also held, on a comparison with section 47 of  the Travancore  Act XXIII of 1121, corresponding to -section  34 of the Indian Income-tax Act, 1922 (XI of 1922) as it  stood prior  to its amendment in 1948, that the persons  who  fall under the class of substantial evaders of income-tax  within

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the meaning of section 5(1) of the Investigation  Commission Act  were not intended to be and could not have  been  dealt with  under the provisions of section 47 of  the  Travancore Act  XXIII  of  1121 and that therefore there  would  be  no discriminatory   application  of  two   parallel   statutory provisions.   In  the present case, however, the majority of  the  Court has  taken the -view that section 5(1) of the  Investigation Commission  Act has become unconstitutional by the  date  of the  Constitution  in  comparison with  section  34  of  the Income-tax Act as amended in 1948.  It was pointed out  that section 47 of the Travancore Act XXIII of 1121 which was the same  as section 34 of the Income-tax Act as it  stood  from 1939  to 1948 did not undergo any amendment by the  date  of the Constitution but continued as be- 1270 fore  and it is said that this makes a difference.   I  feel constrained, however, 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 if  this question.   Undoubtedly  it is true that section 34  of  the Income-tax Act as it stood prior to 1948 is more restrictive in  its operation than the same section as amended in  1948. But  I am unable to see how the class falling under  section 5(11)  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 (1) of the Investigation  Commission  Act the  requirement is that the Central Government  has  "prima facie  reasons  for  believing  that  a  person  has  to   a substantial  extent evaded payment of taxation  on  income". This is quite different from the criterion applicable  under the amended section 34 of the Income-tax Act.  In the  first place, section 34 of the Income-tax Act relates to cases  of evasion   however   small,  while  section   5(1)   of   the Investigation  Commission  Act relates only  to  large-scale evaders  comprised  within the term  "substantial  evasion". Secondly,  the belief of the Government as to the  existence 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 in which tell-tale  appearances  may call for probing and effective investigation.  This may well be no more than "well-grounded reason to suspect".  This  is quite  different  from the standard of "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 "prima facie proof"  and  "proof".   Therefore  "reason  to  believe"  is something  definitely  higher  than  "reason  to   suspect". Indeed  it  is difficult 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 1271 Investigation  Commission  Act and that exercisable  by  the Income-tax  Officer under section 34 of the  Income-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

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Income-tax Act.  Apart,  however,  from any question as  to  the  comparison between  the two sections and as to the standards and  basis of  the  belief required, once it is accepted (as  has  been done in the Travancore Appeals(1) ) that substantial evasion is  a  definite legal standard 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,  Income-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  contemplated  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  reassessment  (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  contemplates   that   the investigation may result in substantial (1) A.  Thangal Kunju Musaliar v. Authorised official  I.T., [1955] 2 S.C.R. 1196. 1272 evasion  not being revealed.  If so the further  proceedings would  be  dropped  on a report by the  Commission  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  only  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  Government  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 Investigation Commission Act for reassessment is totally  different  from that which could be got  at  either under  section 34 of the Income-tax Act as it stood  between 1939  and 1948 or as it stands since 1948.  One has only  to compare the provisions in the Income-tax Act relating to the means  by  which the normal income-tax authorities  can  get information  or  obtain  material  which  might  lead  to  a reopening of the assessment under section 34 of the  Income- tax  Act  to appreciate 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  Incometax  Act. The  primary scheme of the Income-tax Act is that the  basic materials  for  the  assessment  are  the  returns  and  the accounts  or other evidence to be furnished by the  assessee himself  (sections 22 and 23 of the Income-tax Act)  or  the

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checking material that may be available from the returns and the accounts 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 interconnected transactions.   The Income-tax   Officer  has  not  the  power  to  probe   into suspicious   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 cannot  be  sustained if it is a wild guess  based  on  mere suspicion.   Now,  the  whole scheme  of  the  Investigation 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  investigation  into  the affairs  of  assessees  on seemingly  well grounded suspicions might result in  serious encroachment  of personal liberties, has not chosen to  vest the Income-tax Officer with any such powers of investigation and has confined this drastic procedure to evasion of income during  the period commencing 1st January, 1939 to  the  1st September,  1948  (vide  sections  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 Investigation  Commission Act, it is necessary  to  remember these  features  of the scheme.  It would  follow  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 machinery 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   clear,  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 1274 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 reassessment)  shall be  a bar to the initiation of proceedings under section  34 of the Indian Income-tax Act".   This  seems  to  indicate the  possibility  of  concurrent assessment  proceedings as against any  particular  assessee 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 proceedings may go on in  respect  of such  income of the assessee 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

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procedure  as  regards actual reassessment.  That  raises  a different aspect of the matter which will be presently dealt with.  Assuming  however  that  substantial  evaders  contemplated 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 information before  1st  September, 1948,  justifying investigation.  This is by itself a  well- defined class and the 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  Incometax  Officer could by the ordinary process get the escaped income of such assessees for reassessment, that by itself is no ground  for thinking that a classification of substantial war profiteers who  have  evaded  income-tax and  against  whom  there  was information up to a specified date is not in itself a  valid classification.  It is well-recognised that a classification otherwise reasonable is not invalid by reason of the classi- fication not being comprehensive. In  Joseph  Patsone v. Commonwealth of  Pennsylvania(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 practical 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(2)  the same Court stated-   "This Court has frequently held that the legisla-  (1) 282 U.S. 138, 144; 58 L. Ed. 539, 543. (2)  300 U.S. 379, 400: 81 L.Ed. 703, 718. 161 1276 tive authority, acting within its proper field, is not bound to  extend  it’s  regulation to all  cases  which  it  might possibly  reach.   The  legislature ’is  free  to  recognize degrees of harm and it may confine its restrictions to those classes  of cases where the need is deemed to be  clearest’. If ’the law presumably hits the evil where it is most  felt, it is not to be overthrown because there are other instances to  which  it  might  have  been  applied’.   There  is   no

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’doctrinaire  requirement’  that the legislation  should  be couched in all embracing terms".    It  is  substantially  the  above  view  of   permissible classification for the purposes of article 14 that has  been recognised  by  this Court in Sakhawat Ali v. The  State  of Orissa(1) where this Court laid down as follows:   "Legislation  enacted for the achievement of a  particular object or purpose need not be all embracing.  It is for  the legislature  to determine what categories it  would  embrace within  the scope of legislation and merely because  certain categories  which would stand on the same footing  as  those which are covered by the legislation are left out would  not render  legislation  which has been enacted  in  any  manner discriminatory  and  violative  of  the  fundamental   right guaranteed by article 14 of the Constitution".   Even  if  therefore section 34 of the  Income-tax  Act  as amended in 1948 is wide enough in its ambit to catch up  any and every case which could be dealt with under section  5(1) of   the  Investigation  Commission  Act,  it  is  still   a distinctive and selective group out of a larger group and is a class by itself determined with reference to the  criteria above    indicated.    It   is   no   objection    to    the constitutionality  of that classification that some  out  of them  who may have been left out may be-taken up  later  for being proceeded against under the amended section 34 of  the Income-tax  Act.  The class falling within the scope of  the Investigation   Commission  Act  is  a  class  closed   with reference  to  the date-line, 1st September,  1948,  and  it appears  to me difficult to envisage the possibility of  any member  (1) [1955] 1 S.C.R. 1004, 1010. 1277 of  that  class  being available to be  dealt  with  by  the Income-tax  Officer  under  the amended section  34  of  the Income-tax  Act  which came into operation from  after  that date-line except by imputing mala fides to the Government in the   selective   application  of  section   5(1)   of   the Investigation Commission Act.  It is true that the date-line was  changed  by  legislature from 30th June,  1948  to  1st September, 1948.  But it was an essential part of the  whole scheme of the legislation that there was to be no  reference beyond  a dateline to be fixed by the legislature, so as  to limit  the  application  of the Act.  Hence it  is  also  an attribute of the class contemplated by the Act.   I  am  aware  that there are observations  in  Suraj  Mall Mohta’s  case(1)  and Shree Meenakshi Mills’  case(2)  which appear not to have accepted the idea of the class being with reference to a date-line.  But the actual decision in  Suraj Mall  Mohta’s case(1) was based on the  distinction  between section   5(4)  and  section  5(1)  of   the   Investigation Commission Act and the consequential parallelism between the class  falling  under  section 5(4),  of  the  Investigation Commission Act and section 34(1) of the Income-tax Act.   In Meenakshi  Mills’  case(2) the decision was  rested  on  the parallelism  between  section  5(1)  of  the   Investigation Commission  Act and section 34(1) of the Income-tax  Act  as amended in 1954.  The decision in neither of these cases was based  on any final determination of the scope of the  class contemplated by section 5(1) of the Investigation Commission Act.   The  actual decisions in those cases  are  of  course binding  but  not  necessarily all  the  reasoning  therein. Besides, with great respect, the relevancy of the date-line- in  section  5(1)  as  having  been  related  to  the   then contemplated  date for the lapse, in 1948, of  the  controls under  the Essential Supplies (Temporary Powers)  Act,  1946

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(Act  XXIV  of  1946) was not  noticed.   The  principle  of Sakhawat Alis case(3) was not also by then laid down by this Court  (that  case-having been decided  later  in  November, 1954).  (1) [1955] 1 S.C.R. 448. (2) [1955] 1 S.C.R. 787. (3) [1955] 1 S.C.R. 1004, 1010, 1278    Further,  even if the date-line is not an essential  part of   the   classification   under  section   5(1)   of   the Investigation  Commission  Act,  the  other  four  essential features of the scheme of the class contemplated in  section 5(1)  as  set out by me above are by  themselves  enough  to constitute  a complete and rational differentiation  of  the class  comprised  under section 5(1)  of  the  Investigation Commission Act from that under section 34(1) of the  Income- tax  Act  as amended in 1948.  If on such  a  classification some cases of substantial evasion happen to have escaped the machinery  of the Investigation Commission Act,  that  would not invalidate the classification on the principle  accepted in  Sakhawat  Ali’s  case(1).  I am in any  case  unable  to visualise  the reasonable possibility of any person  falling within  the category contemplated under section 5(1) of  the Investigation   Commission   Act,   being   taken   up   for reassessment  under  section  34 of the  Income-tax  Act  as amended   in   1948  and  consequently   of   two   parallel reassessment proceedings relating to such persons  remaining pending  by  the 26th January, 1950, so as  to  bring  about discriminatory operation between them and to render  section 5(1)  of  the Investigation Commission Act  ultra  Vires  in respect  of  such  pending  matters.   It  appears  to   me, therefore, that section 5(1) of the Investigation Commission Act  and  the other sections following thereupon  cannot  be declared  unconstitutional  on  the  ground  of  absence  of reasonable classification.   One  other matter has been relied upon as being  relevant. It  was pointed out that the amendment of section 34 of  the Income-tax  Act in 1948 was simultaneous with the  amendment of  section  5(3)  of  the  Investigation  Commission   Act, extending the time for a reference under section 5(1) by the Central  Government up to the 1st September, 1948.   It  has been suggested that this clearly shows the intention of  the legislature  to  the effect that after  the  1st  September, 1948,  all cases which might have fallen under section  5(1) of  the  Investigation Commission Act are left to  be  dealt with under section 34 of the (1)  [1955] 1 S.C.R. 1004, 1010. 1279  Act  as amended.  It appears to me with respect that  there is  no  basis  for this inference.  On  the  other  hand  it appears to me (if what I have said above as being the scheme of  the  Investigation Commission Act is correct)  that  the legislature  deliberately  limited the  application  of  the Investigation  Commission Act by a date-line, realising  the seriousness of its continued operation.  It did not want  to perpetuate  the drastic provisions thereof to any new  cases in  view of the fact that the official war period ended  and controls  had been lessened by the above date-line,  if  not totally   abolished.    It   may  be   mentioned   that   by proclamation,  the war situation was formally terminated  as from the 1st April, 1946, and that the Control Orders  under the Defence of India Act ceased to be operative from the 1st October,  1946, and that the Essential  Supplies  (Temporary Powers)  Act, 1946, was passed in substitution thereof  This 1946  Act  was intended originally to be in  operation  only

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until  March,  1948. (See Joylal Agarwala v.  The  State(1). The date-line of 1st September, 1948, in section 5(1)  seems to be related to this situation.  It appears to me that with the  full  consciousness  that any new  cases  of  the  same category,  if any, are not likely to be caught up under  the normal procedure, the legislature merely purported by virtue of  the  amended section 34 of the Incometax Act  to  remove certain  lacuna  in  the normal machinery,  which  had  been noticed  and reported upon by the income-tax  administration and  by  the  Investigation Commission,  with  reference  to section 34 as it stood between 1939 to 1948. (See  paragraph 22  of  the General Report of the  Income-tax  Investigation Commission issued in 1948 making its recommendations for the improvement  of the machinery at page 8 of that  report  and Appendix  A  thereto  which would  show  that  amendment  of section 34 was not connected with the extension of the  date for   making   references   under  section   5(1)   of   the Investigation  Commission Act).  I am unable, therefore,  to assume that the simultaneous enactment of section 34 of  the Incometax Act and the amendment of Investigation Com- (1)  [1952] S.C.R. 127, 130. 1280 mission Act in 1948 have a bearing on the question at issue.   Undoubtedly   the  re-assessment  proceedings  under   the Investigation Commission Act appear to deprive the  assessee of  certain  procedural advantages.  He is  deprived  of  an appeal on facts to the Appellate Assistant Commissioner  and to  the  Income,-tax Appellate Tribunal.  He  is  given  the right  of  appeal  only  on points of  law  by  means  of  a reference  to the High Court.  But such reference is  to  be heard  by a Bench of not less than three Judges.  Now,  once there is a valid classification the nature and extent of the actual  discrimination  which results under  the  scheme  of legislation  relating  thereto  is  largely  a  question  of policy,  which  the courts have nothing to do  with,  except possibly where the discrimination has no reasonable relation to the policy and purpose of the classification.  The policy underlying  the Investigation Commission Act is, as  already stated, to catch up for reassessment large scale evasions of income-tax  of the war period.  It -is obvious  that  having regard  to the magnitude of the interests that would be  in- volved  therein,  it was quite legitimate that  the  matters concerned  therewith,  should  be  entrusted  to  a  highly- qualified  and  high-powered  authority,  and  not  to   the ordinary  machinery.   No  grievance  can  be  made  if  the legislature  thought fit not to entrust  the  responsibility for  fact-finding to the normal machinery  involving  lesser qualifications   and  experience.   It  is  true  that   the investigation  might  have been placed in the bands  of  one authority  and the fact finding on the material so  gathered in  the  hands of another authority or that at  least  there might have been provided one appeal on facts also to a high- placed  authority like the High Court.  It may  also  appear somewhat  disquieting  that the same body is  invested  both with  the  power  of investigation and the  power  of  fact- finding and that there is no appeal provided as against  its findings on facts.  But these are all matters of policy  and cannot be said to be either unreasonable or unrelated to the purpose and policy of the classification.  Investigation  is a com-- 1281 prehensive  term and it will be seen that the  investigation procedure itself under the Act is in two stages, one  before the  authorised  official  at  which  the  assessee  is  not entitled  to  be  represented  and  the  other  before   the

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Investigation  Commission at which the assessee is  entitled to  be represented by a pleader, a registered accountant  or an  authorised employee (vide section 7(3) and  the  proviso thereto).  These two stages may be taken roughly, though not necessarily, to indicate two parts of the investigation, (1) the  process of probing into the evasion and collecting  the material  in support of it, and (2) arriving at  conclusions with  reference to the material so collected and  presented. The  latter is the judicial part at which the Commission  is directed under section 7(2) to follow the principles of  the Indian  Evidence Act and to give the assessee  a  reasonable opportunity  of rebutting evidence and generally to  act  in accordance  with  the principles of  natural  justice.   The procedure  relating  to  this  stage  is  assimilated  to  a judicial  enquiry in a larger measure than is the  procedure before  the  Income-tax Officer or the  Appellate  Assistant Commissioner,  in respect of whose proceedings there  is  no provision  that they must follow as far as  practicable  the principles  of the Indian Evidence Act, (See section  23  of the Income-tax Act).  It is wellsettled that the  assessment proceedings  by the Income-tax Officer under section  23  of the Incometax Act-and hence also under section 34  therefore not regulated by the technical standards of evidence  though of course they cannot be based on caprice or suspicion.   It would, therefore, appear that according to the scheme of the Investigation  Commission  Act,  the  judicial  part  of  it approximates  much  more  to  judicial  standards  than  the assessment  proceedings  by the income-tax  authorities  and that  though in theory there is a combination of  the  func- tions of an investigator and the judge in the  Investigation Commission,  in  normal  practice it is likely  to  be  kept distinct  by  the appointment of an authorised  official  to conduct the first portion.  It is also to be remembered that the combination of the investigator 1282 and  judge  is  inherent  even  in  the  normal   income-tax machinery  where  the Income-tax Officer and  the  Assistant Income-tax   Commissioner  are  in  the  nature  of   Judges interested in their own cause. -   It  has been suggested that there is something opposed  to ordinary canons of judicial procedure or natural justice  in the  matter  of making relevant documents available  to  the assesee   in  the  proceedings  before   the   Investigation Commission.   It appears to me, with respect, that  this  is based on a misapprehension.  It is true that section 7(4) of the Investigation Commission Act says:   "No  person  shall be entitled to inspect,  call  for,  or obtain  copies  of, any documents, statement  or  papers  or materials  furnished to, obtained by or produced before  the Commission  or  any authorised official in  any  proceedings under this Act; but the Commission, and after the Commission has   ceased  to  exist  ,such  authority  as  the   Central Government   may  in  this  behalf  appoint,  may,  in   its discretion, allow such inspection and furnish such copies to any   person",  and  section  6(8)  of   the   Investigation Commission Act says:   "All material gathered by the Commission or the authorised official and materials accompanying the reference under sub- section  (1) of section 5 may be brought on record  at  such stage as the Commission may think fit".   But  these  provisions  have to be  read  subject  to  the proviso  to section 7(4) and to the opening part of  section 7(2)  of the Investigation Commission Act.  The  proviso  to section 7(4) is as follows:    "Provided  that, for the purpose of enabling  the  person

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whose  case  or  points  in  whose  case  is  or  are  being investigated  to  rebut any evidence brought on  the  record against  him, he shall, on application made in  this  behalf and  on payment of such fees as may be prescribed  by  Rules made  under this Act, be furnished with certified copies  of documents,  statements, papers and materials brought on  the record by the Commission". Further, the opening part of section 7(2) says: 1283 "In  making an investigation under clause (b) of section  3, the  Commission shall act in accordance with the  principles of  natural justice, shall follow as far as practicable  the principles of the Indian Evidence Act, 1872, and shall  give the  person  whose case is being investigated  a  reasonable opportunity  of  rebutting  any  evidence  adduced   against him...............   The  above  provisions   preclude   the possibility  of  the Commission pushing in  into  the  final record  on  which  the report is to be based  any  ex  parte material  to  which the assessee has had no  access.   These also preclude the possibility of depriving him of the use of any  relevant material in the Commission’s possession  which the assessee may call for.  All that section 7(4) implies is that the assessee is not entitled to a roving inspection  of the material gathered by the Investigation Commission in the course of investigation, which may relate to the affairs  of various  other persons.  Such a provision is not opposed  to natural justice for even in the matter of criminal  judicial trials the accused is not entitled to a roving inspection of the material gathered by the police during investigation. (I may notice, with very great respect, that the observation in Suraj Mall Mohta’s case(1) at page 464 that "the proceedings before  the Income-tax Officer are judicial proceedings  and (that   therefore)  all  the  incidents  of  such   judicial proceedings  have to be observed, i.e., in other words,  the assessee  should be entitled to inspect the record  and  all relevant  documents"  seems  to have  failed  to  note  that section 37(1) specifically limits the judicial character  of the proceedings to the purposes covered by sections 193, 196 and  228  of the Indian Penal Code and also  that  the  said section vests in the Income-tax authorities, the powers of a court only for specified purposes).  If, therefore’ in  view of  all these circumstances the Legislature thought  fit  to entrust  the combined responsibility for  investigation  and fact-finding  to a single high-powered and highly  qualified body consisting of three members of whom one is or has  been a Judge of the High Court and made their findings of  (1) [1955] 1 S.C.R. 448. 162 162 1284  fact  final,  without providing for access to  the  regular heirarchy  of  appeals to the Assistant Commissioner  and  a Bench  of two members of the Income-tax Appellate  Tribunal, there  appears to be nothing unreasonable therein.   On  the other   hand  there  are  counter,balancing  features   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 discrimination brought about in the  procedure relating  to 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  ultimately  a question of policy.  Once the classification is found to  be justified  and reasonably related to the clearly  underlying policy  of the Investigation Commission Act, I am unable  to

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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 section 34 of the Income- tax Act as amended in 1948.  I hold, therefore, that section 5(1)  of  the Investigation Commission Act was  not  hit  by article 14 of the Constitution notwithstanding amendment  of section  34  of  the  Income-tax Act in  1948  and  that  it continued to be valid.  On  all other points urged on behalf of the petitioners,  I agree  with the view expressed in the judgment delivered  by my  learned  brother  Justice  Bhagwati  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 Investigation Commission Act, as stated in the judgment of my learned brother.                            ORDER BY  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 1285 report of the Income-tax Investigation Commission dated  the 26th August 1952 and the assessment orders of the Income-Tax Officer for the years 1940-41, 1941-42 and 1943-44 to  1948- 49,  and  that a writ of prohibition do  issue  against  the respondents restraining them from implementing the  findings of  the  investigation Commission with regard  to  the  year 1942-43.   The respondents do pay the petitioners’ costs  of their petition.