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PETITIONER: SURAJ MALL MOHTA AND CO.

       Vs.

RESPONDENT: A. V. VISVANATHA SASTRI AND ANOTHER.

DATE OF JUDGMENT: 28/05/1954

BENCH: MAHAJAN, MEHAR CHAND (CJ) BENCH: MAHAJAN, MEHAR CHAND (CJ) DAS, SUDHI RANJAN BOSE, VIVIAN BHAGWATI, NATWARLAL H. AIYYAR, T.L. VENKATARAMA

CITATION:  1954 AIR  545            1955 SCR  448  CITATOR INFO :  F          1955 SC   1  (4)  D          1955 SC   3  (4)  F          1955 SC  13  (2,6,7,13)  F          1955 SC 257  (2)  E&D        1956 SC 246  (52,58,59,60,61)  F          1956 SC 269  (8,9,31,40,44)  R          1957 SC 397  (48)  E          1959 SC 149  (4,6,41,44)  RF         1962 SC  92  (6)  R          1962 SC1006  (37,73)  R          1963 SC 222  (51)  R          1963 SC1356  (12,51,52,124)  R          1964 SC1190  (6,7)  R          1965 SC 342  (25)  RF         1966 SC1342  (9)  RF         1967 SC 295  (71)  R          1967 SC1581  (11,22)  D          1968 SC 317  (11)  RF         1968 SC 565  (14)  RF         1970 SC2042  (8)  R          1972 SC  19  (3)  R          1974 SC2009  (4,9,10,15,18,26,31,33)  F          1974 SC2044  (3)  RF         1978 SC1457  (60)  RF         1988 SC1531  (155)  R          1991 SC 855  (35)

ACT:     Taxation  on Income (Investigation Commission) Act  (XXX of  1947) ss. 5(1), 5(4)-Extent and range different-S.  5(4) and  s. 34 of Indian Income-tax Act (XI of  1922)-Deal  with same  class of persons--Properties and  characteristics  the same-Procedure  under the two Acts  different-Section  5(4)- Whether ultra vires Art. 14 of the Constitution.

HEADNOTE:    Sub-section  (4) of section 5 of the Taxation  on  Income (Investigation Commission) Act, 1947, does not deal with the same  class  of  persons as are said to  have  been  grouped

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together  in  subsection  (1) of section 5  of  the  Act  as persons  who  to  a substantial  extent  evaded  payment  of taxation on income.  On a plain reading of the section it is clear that sub-section (4) of section 5 is not limited  only to persons who made extraordinary profits and to all persons who   may  have  evaded  payment  of  taxation   on   income irrespective  of whether the evaded profits are  substantial or insubstantial and therefore the scope of sub-section  (4) of section 5 is different from the scope of sub-section  (1) of section 5 both in extent and range.    Sub-section (4) of section 5 of the Act, obviously  deals with the same class of persons who fall within the ambit  of section  34 of the Indian Income-tax Act and are dealt  with in sub-section (1) of that section and whose -income can  be caught by the proceeding under that section. It is not possible to hold that all such persons who  evaded payment  of  income-tax  and  do  not  truly  disclose   all particulars or material facts necessary for their assessment and against whom a, report is made under sub-section (4)  of section 5 of the impugned 449    Act  by themselves form a class distinct from  those  who evade  payment  of income-tax and come within the  ambit  of section 34 of the Indian Income-tax Act.     Both section 34 of the Indian Income-tax Act, 1.922, and subsection  (4)  of  section 5 of  the  Taxation  on  Income (Investigation Commission) Act, 1947, deal with all  persons who have similar characteristics and similar properties, the common characteristics being that they are persons who  have not truly disclosed their income and have evaded payment  of taxation on income.     The  procedure  prescribed  by the  Taxation  on  Income (Investigation Commission) Act, 1947, is substantially  more prejudicial  and  more  drastic to  the  assessee  than  the procedure under the Indian Income-tax Act (XI of 1922).     Held,  therefore that sub-section (4) of section  5  and the procedure prescribed by the impugned Act in so far as it affects the persons proceeded against under that sub-section being a piece of discriminatory legislation offends  against the provisions of article 14 of the Constitution and is thus void and unenforceable.

JUDGMENT:    ORIGINAL JURISDICTION: Petition No. 196 of 1954.    Under  article  32 of the Constitution of India  for  the enforcement of fundamental rights. P.   R. Das and K. P. Khaitan, (B.  Sen, A. K. Mukherjea and B. P. Maheswari, with them) for the petitioner. C.   K. Daphtary, Solicitor-General for lndia, (Porus A.   Mehta and P. G. Gokhale, with’, him) for the respondents. 1954.  May 28.  The Judgment of the Court was delivered by I    MEHR CHAND MAHAJAN C.J.-The principal question  canvassed in this case is whether certain sections of the Taxation  on Income  (Investigation Commission) Act, 1947, i.e., Act  XXX of 1947, have become void from the date of the  commencement of the Constitution of India by reason of article 14 of the’ Constitution.    The  petitioner,  Suraj  Mall Mohta &  Co.  Ltd.,  is  -a company  registered under the Indian Companies  Act.   Suraj Mall Mohta is also the managing director of another  company Messrs.   Jute and Gunny Brokers Ltd.  A reference had  been made  by  the  Central Government under  the  provisions  of section 5(1) of the Act before 58

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450 1st September, 1948, of the case of Messrs.  Jute and  Gunny Brokers Ltd. to the Investigation Commission appointed under Act  XXX  of 1947.  During the investigation  of  that  case which was numbered 831/30 in the records of the  Commission, and  during the investigation of some other cases  similarly referred  to  the  Commission,  it was  said  to  have  been discovered  that  the  petitioner company  had  made  secret profits which it had not disclosed and had thus evaded taxa- tion. On the 28th August, 1953, a report to this effect  was made  by the Commission to the Central Government under  the provisions  of section 5(4) of the Act requesting  that  the case  of the petitioner along with the cases of  Suraj  Mall Mohta and other members of his family may be referred to the Commission for investigation. On the 9th September, 1953, the Central Government  referred these  cases  to  the  Investigation  Commission  under  the provisions  of  section  5(4)  of the  Act  and  these  were numbered  831/64-69 on the records of- the  Commission.   On the  15th  of September, 1953, the Commission  notified  the petitioners   that  their  cases  had  been   referred   for investigation  and they were called upon to furnish  certain material,  as detailed in Annexure "B" of the  petition,  to the Commission. On the 12th April, 1954, the present petition under  article 32   of  the  Constitution  was  filed  for  the  issue   of appropriate writs restraining the Commission from taking any action  against the petitioner under the provisions  of  Act XXX  of 1947, on the ground that the provisions of  sections 5(1),  5(4),6,7 and 8 of Act XXX of 1947, had  become  void, being  discriminatory  in character after  the  coming  into force of the Constitution of India. In order to appreciate the respective contentions raised and canvassed before us on behalf of the petitioner company  and the  State, it is necessary to set out some of the  relevant provisions  of the Act.  The object of the Act as stated  in its  Preamble was to ascertain whether the actual  incidence of taxation on income in recent years had been in accordance with 451 provisions  of law and whether the procedure for  assessment and  recovery  of  tax,  was  adequate  to  prevent  evasion thereof.   Section  3 authorizes the Central  Government  to constitute  a  Commission,  to  be  called  the   Income-tax Investigation   Commission,   it,%  duty,   being   (a)   to investigate  and  report to the Central  Government  on  all matters  relating  to taxation on  income,  with  particular reference  to the extent to which the existing law  relating to, and procedure for, the assessment and collection of such taxation is adequate to prevent the evasion thereof; (b)  to investigate  in accordance with the provisions of  this  Act any case or points in a case referred to it under section 5. The  composition of the Commission is set out in section  4. Section 5 of the Act reads as follows    5(1)-The  Central Government may at any time  before  the first  day of September, 1948, refer to the  Commission  for investigation  and  report any case or points in a  case  in which  the  Central Government has prima facie  reasons  for believing  that a person has to a substantial extent  evaded payment  of taxation on income, together with such  material as  may be available in support of such belief, and  may  at any time before the 1st day of September, 1948, apply to the Commission  for  the withdrawal of any case or points  in  a case thus referred.........   (2).......................................

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  (3)No reference made by the Central Government under sub- section, (1), at any time before the first day of September, 1948, shall be called in question, nor shall the sufficiency of  the material on which such a reference has been made  be investigated in any manner by any Court.    (4)If  in  the course of investigation into any  case  or points  in a case referred to it under sub-section (1),  the Commission has reason to believe-    (a) that some person other than the person whose case  is being investigated has evaded payment of taxation on income, or   (b)that  some points other than those referred’ to  it  by the Central Government in respect of any case 452 also  require  investigation, it may make a  report  to  the Central Government stating its reasons for such belief  and, on  receipt  of such report, the Central  Government  shall, notwithstanding   anything  contained  in  subsection   (1), forthwith refer to the Commission for investigation the case of  such  other person or such additional points as  may  be indicated in that report." The  powers possessed by the Commission while conducting  an investigation  are  provided for in section 6  which  is  in these terms: "6(1)-The Commission shall have power to require, any person or  banking  or other company to prepare and furnish  on  or before  a specified date written statements of accounts  and affairs verified in such manner as may be prescribed by  the Commission and, if so required by the Commission, also  duly verified by a qualified auditor, giving information on  such points  or matters as in the opinion of the Commission  may, directly  or indirectly, be useful for, or relevant to,  any case  referred  to it, and any person or  banking  or  other company so required shall be bound, notwithstanding any  law to the contrary, to comply with such requirement.    (2)The  Commission  shall also have power  to  administer oaths, and shall have all the powers of -a civil court under the  Code  of  Civil Procedure, 1908, for  the  purposes  of taking  evidence  on  oath,  enforcing  the  attendance   of witnesses and of persons whose cases are being investigated, compelling   the   production  of  documents   and   issuing commissions for the examination of witnesses.   (3)If  in the course of any investigation it  ’appears  to the  Commission to be necessary to examine any  accounts  or documents  or  to  interrogate  any  person  or  obtain  any statements from any person, the Commission may authorize any income-tax  authority  not  below  the  rank  of  Income-tax Officer in that behalf...    (4)The authorized official shall subject to the direction of  the  Commission have the same powers as  the  Commission under sub-sections (1) and (2), and 453 any person having charge or custody of accounts or documents required  to be examined shall not withstanding anything  in any law to the contrary be bound to produce them    (5)If  any person whose case or the points in whose  case is  or are being investigated by the Commission  refuses  or fails  to  attend in person in compliance with a  notice  in that behalf duly served upon him or to give any evidence  or to  answer questions or to produce documents or  to  prepare and  furnish  statements  when called upon  to  do  so,  the Commission may, if satisfied that the refusal or failure was wailful, close the investigation of the case and proceed  to draw up its report on the case or on the points to the  best of  its judgment and may in its discretion also direct  that

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such  sum  as  it  may specify in  the  direction  shall  be recovered from the person by way of penalty for the  refusal or  failure,  without  prejudice to any  penalty  under  the Indian Income-tax Act, 1922 (6)................................................. (7)Where  in  the opinion of the Commission  any  person  or banking  or other company is likely to be in  possession  of any   information  or  document  which  may,   directly   or indirectly be useful for, or relevant to, any case  referred to it or any case likely to be reported by the Commission to the  Central Government under the provisions of  sub-section (4)  of  section  5,  the  Commission  and  subject  to  the direction  of  the Commission any authorized  official,  may make  enquiries in such manner as it or he may deem fit  and obtain  from  such  person  or  banking  or  other   company statements  on oath or’ otherwise on such points or  matters as  may  be  specified;  and for the  purpose  of  any  such enquiry,  the Commission and the authorized’ official  shall have  all the powers conferred on them by sub-sections  (1), (2), (2A), (3) and (4).  (8)  All  materials  gathered  by  the  Commission  or  the authorised official and materials accompanying the reference under sub-section (1) of section 6 may be brought on  record at such stage as. the Commission may think fit." 454 The procedure to be followed by the Commission is  contained in  section 7 which provides that subject to the  provisions of this Act the Commission shall have power to regulate  its own  procedure and that the powers of the  Commission  under sub-sections  (1),  (2), (3), (7) and (8) of section  6  and sub-sections (2), (4) and (6) of this section, i.e.  section 7  may be exercised by any member thereof authorised by  the Commission  in  this behalf.  Sub-section (2) of  section  7 provides as follows "  7(2)-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;  and  the power of the  Commission  to  compel production  of  documents  shall  not  be  subject  to   the limitation  imposed  by section 130 of the  Indian  Evidence Act, 1872, and the Commission shall be deemed to be a  Court and  its proceedings legal proceedings for the  purposes  of sections 5 and 6 of the Bankers’ Books Evidence Act, 1891."    Sub-section (3) of section 7 is in these  terms: "7(3)-Any   person whose case is being investigated  by  the Commission  may  be represented by a pleader,  a  registered accountant  or  an employee duly authorised to  act  on  his behalf,  provided  that no person shall be  entitled  to  be present  or  to be represented in the course of  an  enquiry under subsections (3) and (7) of section 6."    The   result  of  these  provisions  is  that  when   the Commission  is  collecting  the  materials  from   different sources  against  the  assessee he is  not  entitled  to  be present  at those stages and take part in the  enquiry,  but after the material is ready and is placed on the record then he  can  be  present  and  has  to  be  given  a  reasonable opportunity  of  rebutting any evidence that may  have  been collected  against him.  Sub-section (4) of section 7  which came in for considerable criticism provides as follows:- 455     "7(4)-No person shall be entitled to inspect, call  for, or  obtain copies of, any documents, statement or papers  or

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materials furnished to, obtained by or produced before, the, Commission  or  any authorized 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-.     Provided  that, for the purpose of enabling  the  person 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.  " Sub-section (5) of section 7 is in these terms "7(5)-Save in cases in which the Commission may exercise its powers  under  section 195 and Chapter XXXV of the  Code  of Criminal Procedure, 1898, (a)no suit, prosecution or other legal proceedings shall  be instituted against any person in any civil or criminal Court for any evidence given or produced by him in any proceedings before the Commission, and , (b)no  evidence so given or produced shall be admissible  in evidence  against  such person in any suit,  prosecution  or other proceeding before such Court, except with the previous sanction of the Central Government." The  last  section that came in for objection is  section  8 which is in these terms: "8(1)-Save as otherwise provided in this Act, the  materials brought  on  record  shall be considered by  all  the  three members of the Commission sitting together and the report of the  Commission shall be in accordance With the  opinion  of the majority. (2)After  considering  the report,  the  Central  Government shall by order in writing direct that such 456 proceedings  as  it thinks fit under the  Indian  Income-tax Act,  1922, the Excess Profits Tax Act, 1940, or  any  other law,  shall  be taken against the person to whose  case  the report  relates  in  respect of the income   of  any  period commencing  after the 31st day of December-, 1938; and  upon such a direction being given, such proceedings may be  taken and completed under the appropriate law notwithstanding  the restrictions  contained in section 34 of the Indian  Income- tax Act, 1922, or section 15 of the Excess Profits, Tax Act, 1940, or any other law and notwithstanding any lapse of time or  any decision to a different effect given in the case  by any Income-tax authority or Income-tax Appellate  Tribunal.    (3)    ......    (4)    In  all  assessment  or  reassessment  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. (5)  In  respect  of  any  order  made  in  the  course   of proceedings  taken in pursuance of a direction issued  under sub-section  (2) the provisions of sections 30, 31,  33  and 33-A   of   the  Indian  Income-tax  Act,  1922,   and   the corresponding provisions of the Excess Profits Tax Act 1940, shall  not apply so far as matters declared final,  by  sub- section  (4)  are concerned; but the person  concerned  may, within  60 days of the date upon which he is served  with  a

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copy  of such order, by application in the  prescribed  form accompanied  by  a fee of Rs. 100  require  the  appropriate Commissioner  of Income-tax to refer to the High  Court  any question of law arising out of such order, and thereupon the provisions of sections 66 and 66-A of the Indian  Income-tax Act, 1922, shall as far as may be apply, with the  modifica- tion  that  the reference shall be heard by a Bench  of  not less than three Judges of the High Court. (6) 457 (7)  Notwithstanding  anything to the contrary contained  in this  Act or in any other law for the time being  in  force, any  evidence in the case admitted before the Commission  or an  authorized official shall be admissible in  evidence  in any proceedings directed to be taken under sub-section (2)." It was not and could not be denied that the powers vested in the Commission and the procedure prescribed by the  impugned Act  is more comprehensive and drastic than those  contained in the Indian Income-tax Act.  At the time when the impugned statute  was  passed  there  could  possibly  be  taken   no exception to its contents on the ground of constitutionality of  it’s  provisions,  and  the  powers  conferred  on   the Commission  and  the procedure it was authorized  to  follow were  well within the ambit of the Legislative power of  the Central  Legislature.  The impugned statute  admittedly  was good law till the coming into force of the Constitution.    When India became a sovereign democratic Republic on 26th January, 1950, the validity of all laws had to be tested  on the  touchstone  of the new constitution and all  laws  made before  the  coming into force of the Constitution  have  to stand the test for their validity on the provisions of  Part III of the Constitution. The  points  that  require consideration  in  the  case  are whether the provisions of section 5(1), sections 5(4), 6,  7 and 8 or any parts thereof contravene the guarantee of equal protection  of the laws and of the equality before the  law, or whether the impugned provisions of the Act are based on a valid  classification  which  is rational  in  view  of  the objects of the Act.  A further point  is  whether section 6(5)of the  Act  offends  against article 20 (3) of the Constitution. Mr. P. R. Das for the petitioner attacked the provisions  of section  5(1) of the Act on a two-fold ground: (1) That  the section was not based on any valid classification; the  word "substantial" being vague and uncertain and having no  fixed meaning,  could furnish no basis for any  classification  at all;  (2) That the Central Government was entitled  by  the, provisions of the section to discriminate between one person and another in the same class and it was authorized to  pick and  59 458 choose  the  cases of persons who fell within the  group  of those  who had substantially evaded taxation.  It could,  if it chose, send the case of one person to the Commission  and show favoritism to another person ,,by not sending his  case to the Commission though both of these persons be within the group  of  those  who have evaded the payment of  tax  to  a substantial extent.     As  regards sub-section (4)- of section 5,  the  learned counsel  contended  that  this section  had  no  independent existence  and  was  bound to fall with  subsection  (1)  Of section  5,  if his contention regarding the  invalidity  of that section prevailed.  In the alternative, he I  contended that assuming that sub-section (1) was valid even then  sub-

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section  (4)  had  to  be  declared  void  because  it  gave arbitrary  power  to the Commission to pick and  choose  and secondly  because  the clause was highly  discriminatory  in character  inasmuch  as an evasion, whether  substantial  or insubstantial,  came within its ambit as well as within  the ambit of section 34 of the Indian Income-tax Act.    The   learned   Solicitor-General  combated   all   these arguments  and contended that the Act was based on  a  broad and rational classification, that it only dealt with a group of persons who had evaded income-tax from the, beginning  of the  war, 1st January, 1939, to the period ending  with  1st September, 1948, as a consequence of war controls  resulting in  black-marketing activities and huge profits.   In  other words,  it was said that the Act only dealt with that  group of  persons  who came within the  class  of  war-profiteers. This was a class by itself and needed special treatment  and there  fore  the  law  did  not  offend  against  the  equal protection  of the laws clause of the Constitution.  It  was suggest.  ed  that persons coming under sub-section  (4)  of section  5 also belonged to the same class and therefore  on the  same  grounds that section also could not  be  declared void.   It was further. said that there was  no  substantial difference  in the procedure prescribed under section 34  of the  Indian Income-tax Act and the impugned Act and that  in any  case  the procedure prescribed by the Act  was  a  good substitute for that prescribed by the Indian Income-tax Act. 459 In  our judgment, it is not necessary in this case  to  deal with  all  the  contentions  raised by Mr.  P.  R.  Das  and combated  by  the  learned Solicitor-General.   It  will  be sufficient,  for  the decision of this case to  examine  the respective  contentions  raised about the validity  of  sub- section (4) of section 5 of the Act because the case of  the petitioner   was  referred  to  the  Commission  under   the provisions  of  this  section and was not  referred  to  the Commission by the Central Government under the provisions of section 5(1) and that being so, an enquiry into the validity of  that section is really outside the scope of the  present case.  On the assumption therefore that sectio n 5(1) of the Act  is  based on a valid classification and  deals  with  a group of persons who came within the class of war-profiteers which required special treatment and that the classification is  rational and that reasonable grounds existed for  making distinction  between  those who fell within that  class  and others  who did not come within it, but without in  any  way deciding or even expressing any opinion on that question, we proceed  to examine the question whether sub-section (4)  of section 5 under which proceedings had been initiated against the  petitioner  offends  against  the  guarantee  of  equal protection   of  the  laws  given  in  article  14  of   the Constitution. The  first question that requires consideration  is  whether sub-section  (4) of section 5 deals with the same  class  of persons  as  are  said  to have  been  grouped  together  in subsection (1) of section 5 as persons who to a  substantial extent evaded payment of taxation on income: in other words, does  sub-section (4) of section 5 confer an the  Commission the power merely to add to the number of persons included in section  5(1) by, the Central Government or does  it  confer larger power on the Commission.  On the phraseology employed in  the  sub-section  it is difficult to  read  therein  the limitations  contained  in sub-section (1) of section  5  as contended for by the learned Solicitor-General.  Sub-section (4)  which has been set out above in clear  and  unambiguous terms  provided  that where the Commission  "has  reason  to

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believe that some person ther than the person whose case  is being  investigated  has  evaded  payment  of  taxation   on income.......      it may 460 make a report to the Central Government." It does,not repeat the phraseology used in section 5(1) that some person  other than the person whose case is being investigated "have to  a substantial extent evaded payment of taxation on income." On no principle of construction of statutes can the words to  a "substantial  extent" be read in sub-clause (a)  of  section 5(4).   On a plain reading of the section it is  clear  that the  subsection  is  not limited only to  persons  who  made extraordinary  profits  and to a substantial  extent  evaded payment  of taxation on income, but applies to  all  persons who   may  have  evaded  payment  of  taxation  on   income, irrespective  of whether the evaded profits are  substantial or insubstantial.  In other respects also the phraseology of the  section is different from that employed in  sub-section (1) of section 5. Sub-section (1) of section 5 provided that where  the Central Government "has prima facie  reasons  for believing  that a person has to a substantial extent  evaded payment of taxation on income", while clause (a) of  section 5(4).  says  that if the Commission "has reason  to  believe that  some person other that the preson whose case is  being investigated has evaded payment of taxation on income".  The prima facie belief of the Central Government is  substituted by  the expression "The Commission has reason  to  believe". The scope of the section is thus different from the scope of section  5(1) of the Act, both in its extent and range.,  It is  not  necessarily  limited to  profits  made  within  any particular  period and brings within its range all  persons, whether  traders, businessmen, professional people,  whoever they  may  be, who may have at any time  evaded  payment  of taxation on income for whatever cause. That being the true scope or construction of subsection (4), it  obviously deals with the same class of persons who  fall within the ambit of section 34 of the Indian Income-tax  Act and  are  dealt with in subsection (1) of that  section  and whose income can be caught by proceeding under that section. Assessees  who have failed to disclose fully and  truly  all material facts necessary for the assessment under section 34 can be equated with persons who are discovered in the 461 course of the investigation conducted under section 5(1)  to have  evaded  payment of income-tax on their  incomes.   The result  is  that some of these persons can,’ be  dealt  with under  the provisions of Act XXX of 1947, at the  choice  of the  Commission,  though they could also be  proceeded  with under the provisions of section 34 of the Indian  Income-tax Act.   It is not possible to hold that all such persons  who evade  payment of income-tax and do not truly  disclose  all particulars or material facts necessary for their assessment and  against whom a report is made under sub-section (4)  of section  5  of the impugned Act by themselves form  a  class distinct from those who evade payment of income-tax and come within the ambit of section 34 of the Indian Income-tax Act. It  is  well  settled  that in  its  application  to  legal. proceedings article 14 assures to everyone the same rules of evidence  and modes of procedure; in other words,  the  same rule  must  exist for all in similar circumstances.   It  is also  well  settled that this principle does not  mean  that every  law must have universal application for  all  persons who  are not by nature, attainment or circumstance,  in  the same  position.  The State can by  classification  determine who   should  be  regarded  as  a  class  for  purposes   of

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legislation and in relation to a law enacted on a particular subject, but the classification permissible must be based on some  real  and substantial distinction bearing a  just  and reasonable  relation’ to the objects sought to  be  attained and  cannot be made arbitrarily and without any  substantial basis.   Classification means segregation in  classes  which have a systematic relation, usually found in common  proper- ties and characteristics.  There is nothing uncommon  either in properties or in characteristics between persons who  are discovered as evaders of income-tax during an  investigation conducted under section 5(1) and those who are discovered by the Income-tax Officer to have evaded payment of income-tax. Both these kinds of persons have common properties and  have common   characteristics   and   therefore   require   equal treatment.  We thus hold that both section 34 of the  Indian Income-tax Act and sub-section (4) of 462 section 5 of the impugned Act deal with all persons who have similar characteristics and similar properties,  the  common characteristics  being  that they are persons who  have  not truly  disclosed  their income and have  evaded  payment  of taxation on income.    The next question that requires determination is  whether the procedure prescribed by Act XXX of 1947 for  discovering the  concealed profits of those who have evaded  payment  of taxation  on  their income is  substantially  different  and prejudicial  to the assessees than the procedure  prescribed in  the  Indian Income-tax Act by section 34.   The  learned Solicitor-General contended that the procedure prescribed by the  impugned  Act was a fair and good  substitute  for  the procedure  prescribed by the Indian Income-tax Act and  that there  was really no substantial difference between the  two procedures.   He urged that justice could be fully  done  to those persons by following the new procedure and as a matter of  fact,  it  would be more truly  done  by  following  the procedure   under  the  impugned  Act  than  following   the procedure  under the Indian Income-tax Act.  This  argument, in our opinion, begs the question to be decided in all  such cases.   It  is  clear that if persons  dealt  with  by  the impugned  Act are deprived of the substantial  and  valuable privileges  which  they would otherwise have  if  they  were dealt  with  under  the  Indian  Income-tax  Act,  in   that situation  it is no defence to say that  the  discriminatory procedure  also advances the course of justice.  The  matter has  to  be judged from the point of view  of  the  ordinary reasonable  man  and  not  from the point  of  view  of  the Government.  The ordinary reasonable man would say, when the stakes are heavy and serious charge of evasion of income-tax are  made  against,  him, why one  person  similarly  placed should  have  the advantage substantially of  the  procedure prescribed  by  the  Indian Income-tax  Act,  while  another person  similarly  situated be deprived of it.  It  is  from this aspect that the application of article 14 to the  facts of this case has to be considered.   The  next  question  for  consideration  is  whether   the procedure prescribed by the impugned Act in regard to 463 persons similarly situate with those who are proceeded  with under section 34, is substantially different than under  the Act, and operates to the prejudice of those persons.  So far as we can see these assessees have been given discriminatory treatment even from those whose cases are referred to  under section 5(1) of the Act to the Commission inasmuch as in the case  of persons whose cases are referred to  under  section 5(1)  of  the  Act  it is the prima  facie,  belief  of  the

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Government  that  enables the reference to be  made  to  the Commission  and  the Commission has after  investigation  to form an opinion; while in the case of persons coming  within the  ambit  of sub-section (4) of section 5  the  Commission itself  finds  and  gathers reason to  believe  that,  these persons  have  evaded  income-tax  and  on  its  report  the Government  is  bound  to  refer their  cases  to  the  same Commission  who  has.  already arrived at  the  prima  facie conclusion that they have evaded payment of income-tax.  The investigator and the judge in this situation are rolled into one.   That  is not so in cases coming under  section  5(1). Apart   from  this  circumstance,  there   are   substantial differences  between the two procedures, inter alia, in  the following matters :-   1. Under the provisions of section 8 of the impugned  Act, the  findings of fact given by the Commission as  to  factum and extent of the evasion are final and conclusive and  thus the persons against whom proceedings are taken under section 5(4) are deprived of the rights of appeal, second appeal and revision  conferred by sections 31, 32 and 33 of the  Indian Income-tax Act on assessees whose cases are dealt with under the procedure of section 34 of the Indian.  Income-tax  Act. A  person  who  has  evaded payment  of  income-tax  and  is proceeded with under section 34 and is held to have  escaped income-tax has a right of appeal to the Appellate  Assistant Commissioner  of  Income-tax  and  can  challenge  all   the findings  of  fact given by the Income-tax Officer.   If  he does   not   get  relief  from   the   Appellate   Assistant Commissioner,  he  is entitled to go  before  the  Appellate Tribunal under section 33 and can challenge all the findings of fact given by the Income-tax Officer.  On the other hand, a  person dealt with under section 5(4) of the impugned  Act has no such right.  The learned Solicitor-General  contended that the constitution 464 of the Commission was such that it was a good substitute for the  rights of appeal, second appeal and revision  conferred by  the  Income-tax  Act  inasmuch  as  the  Commission   is comprised  of a High Court Judge and two  other  responsible persons  and these sitting together were as good a  tribunal as  the  totality  of  persons  comprising  the   Income-tax Officer, Appellate Assistant Commissioner and the  Appellate Tribunal.    In  our  opinion,  the  constitution   of   the Commission  by  itself  cannot be held to  be  a  sufficient safeguard and a good substitute for the rights of appeal and second  appeal and revision given by the  Indian  Income-tax Act  and  there  can thus be no  doubt  that  the  procedure prescribed  by  the impugned Act deprives a  person  who  is dealt  with  under  that Act of  these  valuable  rights  of appeal, second appeal and revision to challenge questions of fact decided by the Judge of first instance.  There is  thus a  material  and  substantial-difference  between  the   two procedures, one prescribed by the impugned Act and the other prescribed by the Indian Income-tax Act.    2.When an assessment on escaped or evaded income is  made under the provisions of section 34 of the Indian  Income-tax Act,  all  the provisions for arriving  *at  the  assessment provided  under  section 23(3) come into operation  and  the assessment  has to be made on all relevant materials and  on evidence  and the assessee ordinarily has the fullest  right to  inspect the record and all documents and materials  that are to be used against him.  Under the provisions of section 37  of the Indian Income-tax Act the proceedings before  the Income-tax  Officer  are judicial proceedings  and  all  the incidents of such judicial proceedings have -to be  observed

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before  the  result  is arrived at.   In  other  words,  the assessee  would have a right to inspect the record  and  all relevant documents before he is called upon to lead evidence in  rebuttal.   This right has not been taken  away  by  any express  provisions of the Income-tax Act but  the  impugned Act  contains a mandate in sub-section (4) of section  7  to the  effect that "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 authorized official  in.  any proceedings under this 465 Act." There is a proviso to sub-section (4) which says  that for the purpose of enabling the person 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, be furnished with  certified copies  of  documents,  statements,  papers  and   materials brought on the record by the Commission.  This little, mercy shown to the person whose case is being investigated by  the Commission   is  no  substitute  for  the  fullestright   of inspection  which under ordinary law and the Code  of  Civil Procedure  and in a judicial proceeding a person would  have in order to meet the case made against him.  He is  entitled only to get copies of that portion of the materials which is brought on the record and which is going to be used  against him and it is clear that portions of the material which  are in his favour and which have not been brought on the  record may not be available to him at all.  He is not even entitled to  see  all  the  books of  account  which  may  have  been impounded  under  the  Act and taken possession  of  by  the Commission.   It may well happen that there are  entries  in those  books  which contain the rebuttal evidence,  but  the assessee is not entitled to have their copies.  The assessee is  not even entitled to see his own books which are in  the possession  of  the  Commission and  take  copies  of  those entries  which  are  favourable  to  him  and  which   would completely  demolish the case made against the  assessee  by the  Commission.   The  procedure thus  prescribed  in  this matter  by the impugned Act is substantially prejudicial  to the assessee than the procedure prescribed under the  Indian Income-tax  Act.   It  was  not  disputed  by  the   learned Solicitor-General  that  the  procedure  prescribed  by  the impugned  Act in sections 6 and 7 was more drastic than  the procedure  prescribed  in sections 37 and 38 of  the  Indian Income-tax  Act.   Again,  so  far  as  the  procedure   for reference  under subsection (4) of section, 5 is  concerned, it is also to a certain extent prejudicial to the  assessee. There is no doubt that there is in this matter in the  first stages  some similarity in the procedure to be followed  for catching  evaded income both under section 34 of the  Indian Income-tax Act and under the provisions of 69 466 subsection  (4)  of section 5 of the impugned Act;  but  the overall  picture is that though under the Indian  income-tax Act  the  same  officer who first  arrives  at  a  tentative conclusion  hears and decides the case, his decision is  not final  but is subject to appeal, while under the  provisions of  sub-section  (4)  of  section  5  the  decision  of  the Commission  tentatively  arrived at in the  absence  of  the assessee becomes final when taken in his presence, and  that makes  all  the difference between the two  procedures.   If there  was a provision for reviewing the conclusions of  the

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Investigation  Commission when acting both as  investigators and  judges,  there  might not have  been  such  substantial discrimination in the two procedures as would bring the case within  article  14; but as pointed out above, there  is  no provision of that kind in the impugned Act.    It  may also be pointed out that under the provisions  of section  34  investigation  into escaped  income  or  evaded income is limited to a maximum period of eight years,  while under the provisions of sub-section (4) of, section 5 it  is not limited to any period and this certainly operates to the detriment  of  those  dealt with under  sub-section  (4)  of section  5 of the impugned Act, and those dealt  with  under section 34 of the Indian Income-tax Act.     For  the reasons given above we are of the opinion  that sub-section (4) of section 5 and the procedure prescribed by the impugned Act in so far as affects the persons  proceeded against   under   that   sub-section  being   a   piece   of discriminatory legislation offends against the provisions of article  14  of  the  Constitution  and  is  thus  void  and unenforceable.   In reaching this decision we  refrain  from expressing  any  opinion,  as  above  pointed  out,  on  the validity  of  section  5(1) of the Act or  on  the  question whether section 6(5) of the impugned Act offends against the provisions of article 20 sub-clause (3) of the Constitution. We  accordingly  direct that an appropriate writ  be  issued against  the  Investigation Commission prohibiting  it  from taking any proceedings under the provisions of the  impugned Act  against the petitioner.  The petitioner will  have  his costs of these proceedings.                                          Writ issued, 467