21 October 1954
Supreme Court








DATE OF JUDGMENT: 21/10/1954


CITATION:  1955 AIR   41            1955 SCR  (1) 777  CITATOR INFO :  RF         1956 SC 294  (3,11)  F          1957 SC 521  (6,7)  D          1960 SC1080  (27)  F          1960 SC1203  (10,11,13)  F          1961 SC1381  (10)  RF         1962 SC1006  (78,79)  R          1963 SC 151  (21,22)  F          1966 SC 882  (9,14,15,32)  R          1966 SC1788  (17,18)  O          1970 SC 564  (54,55,152,153,154)  D          1972 SC2656  (11)  RF         1973 SC 974  (9,10)  RF         1973 SC1461  (1525)  R          1978 SC 597  (189)  MV         1982 SC1325  (80)  F          1984 SC 866  (4)

ACT: Constitution   of   India,  Art.   14-Taxation   on   Income (Investigation  Commission)  Act,  1947 (XXX  of  1947),  s. 5(1)--Whether ultra vires the Constitutions. 5(1) of Act XXX of  1947 and Indian Income-tax Act, (XI of 1922), s.  34  as amended  by Indian Income-tax (Amendment) Act,  1954-whether cover  the  same field-Discriminatory procedure  before  the date  of  Constitution and after the date  of  Constitution- Validity thereof.

HEADNOTE:       Parliament by amending s. 34 of the Indian Income  tax Act, 1922, by passing the Indian Income-tax (Amendment)  Act (XXXIII  of 1954) has now provided that oases of those  very persons  who originally fell within the ambit of s. 5(1)  of Taxation on Income (Investigation Commission) Act, 1947 (XXX of 1947) and who, it 788 was  alleged,  formed a distinct class, can  be  dealt  with under the amended s. 34 and under the procedure provided  in the  Indian  Income-tax Act.  Both  categories  of  persons, namely,  those who came within the scope of s. 5(1) as  well



as  those who came within the ambit of s. 34, now  form  one class.       Held,  that after the coming into force of the  Indian Income-tax  (Amendment)  Act, 1954 (XXXIII  of  1954)  which operates on the same field as s. 5(1) of Act XXX of 1947 the provisions  of s. 5(1) of Taxation on Income  (Investigation Commission)  Act,  1947 (XXX of 1947),  assuming  they  were based  on  a rational classification, have become  void  and unenforceable as being discriminatory in character.        Article  14 of the Constitution not  only  guarantees equal protection as regards substantive laws but  procedural laws as well.      When an Act is valid, in its entire by before the  date of the Constitution the part of the proceedings regulated by the special procedure and taken during the  pre-Constitution period  cannot be questioned however discriminatory  it  may have been but the discriminatory procedure after the  coming into force of the Constitution cannot be continued.      Suraj Mal Mohta v. Sri A. V. Viavanatha Sastri  (A.I.R. 1954 S.C. 545), Keshava Madhava Menon v. The State of Bombay [1951] S.C.R. 228), Lachmandas Kewalram Ahuja and Another v. The State of Bombay ([1962] S.C.R. 710), Syed Qasim Razvi v. State  of Hyderabad ([1953] S.C.R. 589) and Habeeb  Mohammad v. State of Hyderabad ([1953] S.C.R. 661) referred to.

JUDGMENT:      ORIGINAL  JURISDICTION:  Petitions Nos. 330 to  333  of 1954.     Under  article 132 of the Constitution of India for  the enforcement of Fundamental Rights. P.B.  Das, (B.  Sen, Balaprasad Singh and Ganpat  Rai,  with him) for the petitioner. M.   C. Setalvad, Attorney-General for India, and C.   A. Daphtary,  Solicitor-General for India (O.  N. Joshi,  Porus A. Mehta and P. G. Gokhale, with them) for the respondents. 1954.  October 21.  The Judgment of the Court was  delivered by      MEHR CHAND MAHAJAN C.J.-Writ Petitions Nos. 330 to  333 of  1954,  though  presented  by  different  persons,  raise identical  questions for consideration and decision and  can be conveniently disposed of by one judgment. 789 In   April,   1947,  Taxation   on   Income   (Investigation Commission)  (Act, 1947, Act XXX of 1947) was passed by  the Central  Legislature.  By section 3 of the Act  the  Central Government   was  empowered  to  constitute  an   Income-tax Investigation Commission for investigating matters  relating to  taxation  on  income with particular  reference  to  the question   whether  the  existing  law  was   adequate   for preventing  the  evasion thereof.  Section 5(1) of  the  Act further empowered the Central Government to make a reference by the 30th June, 1948, to the Commission for  investigation and  report of any cases wherein it had prima  facie  reason for  believing that a person had, to a  substantial  extent, evaded  payment of taxation on income.  The date for  making the reference was subsequently extended to 1st of September, 1948.   By an Amendment Act passed in 1948 it  was  provided that  the  life of the Commission, in  the  first  instance, would be up to the 31st of March, 1950, but that it could be further  extended  to 31st of March,  1951.   By  subsequent legislations the life of the Commission has been extended to December, 1955.     The  procedure  prescribed  by the Act  for  making  the



investigation  under  its  provisions is of  a  summary  and drastic  nature.   It  constitutes  a  departure  from   the ordinary  law of procedure and in certain important  aspects is detrimental to the persons subjected to it and as such is discriminatory.   The substantial differences in the  normal procedure of the Income-tax Act for catching escaped  income and  in  the procedure prescribed by Act XXX of  1947,  were fully  discussed by this Court in Suraj Mal Mohta v. Sri  A. V.  Visvanatha Sastri(1) and require no  further  discussion here.     Sub-section  (4) of section 5 of the Act  provided  that the  Central Government could refer to the Commission  cases of persons other than those whose cases had been referred to it  by  the 1st of September, 1948, under section  5(1)  if, after  investigation, the Commission made a report  to  that effect.  Thus, two categories of oases under Act XXX of 1947 could  be  referred to the Investigation Commission  by  the Central Government, (1) (1955] 1 S.C.R. 448. 101 790 namely,  those falling under section 5(1) and those  falling under section 5(4) of the Act.      In  accordance with the provisions of section  5(1)  of the  Act  the Central Government on the  31st  of  December, 1947, referred to the Investigation Commission the cases  of the  four petitioners for investigation and report.   It  is alleged  by  each of these petitioners that  no  action  was taken  by  the  Commission on these  references  during  the original  period  of its life or even  during  the  extended period  provided by the Amendment Act of 1948.  If a  report had been submitted in these cases during the original period of  the life of the Commission, the problems that now  arise would  not  have  arisen,  because  the  Act  being  a  pre- Constitution  Act was good law before the  Constitution  and acts   done  thereunder  before  the  commencement  of   the Constitution  could  not  be impugned on the  basis  of  the provisions  of Part III of the Constitution which came  into force  on the 26th January, 1950.  Those provisions  had  no retrospective operation and could not affect the validity of this law or the completed proceedings taken thereunder.   Be that  as it may, it appears that nothing happened  in  these cases till January, 1952, when it is alleged an official  of the  Commission summoned the petitioners for  a  preliminary discussion  which  took place in February, 1952,  and  since then the petitioners have from time to time been called upon to produce a number of statements and books of account,  but the  investigation has not proceeded beyond the  preliminary stages   and  the  Commission  itself  has  admittedly   not commenced any proceedings in these cases, though a period of nearly  seven  years has elapsed since the  references  were made, with the result that subsequent events have intervened and,  in  our  opinion, have made these  references  to  the Commission abortive.     As  already stated, the Constitution of India came  into force  on the 26th January, 1950, and  the  pre-Constitution laws  had then to stand the test for their validity  on  the provisions  of Part III of the Constitution.  Article 14  of this  Part guarantees to all persons the right  of  equality before  the law and equal protection of the laws within  the territory of India.  This article not 791 only guarantees equal protection as regards substantive laws but  procedural  laws  also  come  within  its  ambit.   The implication  of the article is that all litigants  similarly



situated  are  entitled  to avail  themselves  of  the  same procedural  rights  for relief, and for  defence  with  like protection  and  without  discrimination.   The   procedural provisions  of  Act XXX of 1947 had therefore to  stand  the challenge  of article 14 and could only be  upheld  provided they  withstood that challenge.  The question was  canvassed in  this Court in April, 1954, in Suraj Mal Mohta v. Sri  A. V.  Visvanatha Sastri (supra).  What happened in  that  case was  that the Investigation Commission, while  dealing  with the  case of another assessee referred to it  under  section 5(1)  of  the Act, reported to the Central  Government  that Suraj  Mal Mohta and other members of the family had  evaded income-tax  and their cases should be referred to  it  under the  provisions  of  sub-section  (4)  of  section  5.   The reference  was accordingly made with the result  that  Suraj Mal  Mohta  applied to this Court under article  32  for  an appropriate writ restraining the Commission from taking  any action against him under the provisions of Act XXX of  1947. It was there contended that the provisions of sections 5(1), 5(4), 6, 7 and 8 of the Act had become void after the coming into  force  of the Constitution,  being  discriminatory  in character,   and  that  these  provisions  contravened   the guarantee  of  article 14 of the Constitution.   This  Court upheld  this contention and granted an appropriate  writ  to Suraj  Mal Mohta.  It there expressed the opinion that  sub- section  (4)  of section 5, on its plain  reading,  was  not limited  to cases of persons who, to a  substantial  extent, had evaded taxation but that it dealt with all those persons whose  cases  fell  within the ambit of section  34  of  the Indian  Income-tax  Act,  and that being so,  there  was  no justification   for  discriminating  them  in   matters   of procedure from those dealt with under the Indian  Income-tax Act,  and  thus  sub-section (4) of section  5  was  hit  by article   14   of  the  Constitution  and   was   void   and unenforceable.   The  result of this decision was  that  the Commission  was restrained from dealing with  Mohta’s  case. The provisions of section 5(1) 792 of  the Act were also attacked in that case as  contravening article 14 of the Constitution, but the Court refrained from expressing any opinion about their constitutionality as that question  had  no relevancy then.  The consequence  of  that decision was that a certain provision of Act XXX of 1947 was declared  void  and  unenforceable  to  the  extent  of  its repugnancy to the provisions of Part III of the Constitution under article 13(1) thereof Its validity however during  the pre-Constitution period was beyond question.     What this Court said in its judgment in Suraj Mal  Mohta v. Sri A. V. Visvanatha Sastri (supra) has perhaps  resulted in  the  filing of these petitions which were  presented  to this Court on the 16th of July, 1954, after the decision  in that  case  had  been  pronounced.   In  the  petitions,  as originally  drafted, the provisions of section 5(1)  of  Act XXX   of  1947  were  impugned  on  the  ground  that   they contravened  the guarantee of equal protection of  the  laws enacted  in  article  14 of the Constitution  and  for  that reason  the Commission had no jurisdiction to deal with  the cases of the petitioners by applying the discriminatory  and drastic procedure of the impugned Act.  It was alleged  that the  petitioners  belonged to the same class of  persons  as were dealt with under the ordinary law enacted in section 34 of the Indian Income-tax Act.  Before these petitions  could come  to  a hearing and a day after they were  presented  to this Court, the Indian Income-tax (Amendment) Ordinance VIII of  1954  was  promulgated by the  President  and  this  was



subsequently  made  into an Act on the  25th  of  September, 1954.   The  Indian Income-tax (Amendment)  Act,  XXXIII  of 1954,  though  assented to by the President on the  25th  of September,  1954, came into force with effect from the  17th of  July,  1954.  The provisions of this  Act  furnished  an additional  ground  of  attack to  the  petitioners  on  the continuance of proceedings by the Commission in these  cases under the provisions of Act XXX of 1947.  An application was therefore  made  seeking  permission  to,  urge   additional grounds.   This  was not opposed by  the  learned  Attorney- General  and was allowed.  In the additional grounds it  was urged that the relevant                             793 sections of Act XXX of 1947, which affected the petitioners, had  been impliedly repealed by the amended Act of 1954  and ceased to have any legal force and that the Commission could no  longer  proceed  under  those  provisions  against   the petitioners.   It  was further contended  that  the  amended section 34 of the Indian Income-tax Act was comprehensive in its  scope,  and  all persons that  were  dealt  with  under section 5(1) of Act XXX of 1947 had been brought within  its ambit, and that being so, there was no basis left for giving them  discriminatory  or special  treatment  different  from those  similarly  situated, and who were to  be  dealt  with under  section 34 of the Indian Income-tax Act  as  amended. It was said that assuming but without admitting that section 5(1)   of  Act  XXX  of  1947  was  based  on   a   rational classification  and  was  not  hit  by  article  14  of  the Constitution  because  of  that circumstance,  it  had  now, because  of  the amendment in section 34 of  the  Income-tax Act, become void, as the classification which saved it  from the   mischief  of  article  14  if  at  all,   had   become ineffective,   its   distinctive   characteristics    having disappeared,  and that the persons falling within the  class defined  in section 5(1) now belong to the same class as  is dealt with by section 34 as amended.      Two questions were thus canvassed before us:    (1)  Whether  section 5(1) of Act XXX of  1947  infringes article  14 of the Constitution inasmuch as it is not  based on a rational classification ?       (2)Whether, after the coming into force of the  Indian Income-tax (Amendment) Act, 1954, which operates on the same field as section 5.(1) of Act XXX of 1947, the provisions of section 5(1) of Act XXX of 1947, assuming they were based on a   rational  classification,  have  not  become  void   and unenforceable, as being discriminatory in character.?     In  our  opinion,  for the  purpose  of  deciding  these petitions, it is not necessary to express any opinion on the first  question  because we think the second  contention  is well  founded  and is sufficient to determine  the  case  in favour of the petitioners.     The provisions of section 15(1) of Act XXX of 1947 could only be supported, if at all, for a differential 794 treatment  of persons dealt with in that section in  matters of procedure, on the ground that these persons constituted a separate   class,  and  the  classification  was   rational. Parliament  has,  however,  by amending section  34  of  the Indian Income-tax Act, now provided that cases of those very persons who originally fell within the ambit of section 5(1) of Act XXX of 1947, and who it was alleged formed a distinct class,  can be dealt with under the amended section  34  and under  the procedure provided in the Income-tax  Act.   Both categories  of  persons, namely, those who came  within  the scope  of section 5(1) as well as those who came within  the



ambit  of section 34, now form one class.  In  other  words, substantial  tax-dodgers or war profiteers who were  alleged to have formed a definite class according to the  contention of the learned AttorneyGeneral under section 5(1), and whose cases   needed  special  treatment  at  the  hands  of   the Investigation Commission, now clearly fall within the  ambit of  amended section 34 of the Indian Income-tax  Act.   That being  so,  the  only basis  for  giving  them  differential treatment,  namely,  that they formed a  distinct  class  by themselves, has completely disappeared, with the result that continuance of discriminatory treatment to them comes within the mischief of article 14 of the Constitution and has  thus to be relieved against.  All these persons can now well  ask the  question,  why  are  we now being  dealt  with  by  the discriminatory and drastic procedure of Act XXX of 1947 when those  similarly situated as ourselves can be dealt with  by the  Income-tax  Officer  under the  amended  provisions  of section  34 of the Act.  Even if we once bore a  distinctive label that distinction no longer subsists and the label  now borne  by us is the same as is borne by persons who  can  be dealt with under section 34 of the Act as amended; in  other words, there is nothing uncommon either in properties or  in characteristics  between us and those evaders of  income-tax who are to be discovered by the Income-tax Officer under the provisions  of  amended  section 34.  In  our  judgment,  no satisfactory  answer can be returned to this  query  because the field on which amended section 34 operates 795 now  includes  the strip of territory which  previously  was occupied  by  section  5(1)  of Act  XXX  of  1947  and  two substantially  different laws of procedure, one  being  more prejudicial  to  the  assessee than  the  other,  cannot  be allowed  to  operate  on  the same  field  in  view  of  the guarantee of article 14 of the Constitution.     The  learned Attorney-General attempted to  combat  this contention  on  a  two-fold ground: (1) That  the  class  of persons dealt with under section 5(1) of Act XXX of 1947 was not  only the class of substantial taxdodgers but it  was  a class of persons whose cases the Central Government, by  1st of September, 1948, had referred to the Commission and  that class  had thus become determined finally on that date,  and that  that  class  of persons could be  dealt  with  by  the Investigation Commission under the drastic procedure of  Act XXX  of 1947, while section 34 of the Indian Income-tax  Act as  amended  empowered the Incometax Officer  to  deal  with cases  other than those whose cases had been referred  under section  5(1) to the Investigation Commission : (2) That  in any   case  the  proceedings  having  started   before   the Commission in pursuance of the reference under section  5(1) of  Act XXX of 1947 those proceedings cannot be affected  by the amendment, it having no retrospective operation.     Both  these  contentions, in our opinion, are  not  well founded.     As regards the first contention canvassed by the learned Attorney-General  it  seems  to  us  that  it  cannot  stand scrutiny.   The class of persons alleged to have been  dealt with  by section 5(1) of the impugned Act was  comprised  of those  unsocial elements in society who during recent  years prior to the passing of the Act had madesubstantial  profits and  had evaded payment of tax on those profits those  cases were  referred to the Investigation Commission   before  1st September,  1948.   Assuming  that  evasion  of  tax  to   a substantial amount "could form a basis of classification  at all  for  imposing a drastic procedure on  that  class,  the inclusion of only such of them whose cases had been referred



before  1st  September, 1948, into a class for  being  dealt with by the drastic procedure, leaving other tax evaders 796 to  be  dealt with under the ordinary law will  be  a  clear discrimination  for  the  reference of  the  case  within  a particular  time has no special or rational nexus  with  the necessity for drastic procedure.  Further it seems that this very  class of persons is now included within the  ambit  of the amended section 34 of Act XXXIII of 1954.  The draftsman of this section has apparently attempted to remedy  whatever defects in the classification made under section 5(1) of Act XXX  of 1947 had been pointed out during the  discussion  in Suraj  Mal Mohta’s case in this Court.  The preamble of  the Act  states  that  the  Act  is  intended  to  provide   for assessment  or reassessment of persons who to a  substantial extent had evaded payment of tax during a certain period and for matters connected therewith.  The language employed here bears close likeness to that employed in section 5(1) of the impugned  Act.   The  Act has inserted  the  following  sub- section in section 34 of the Indian Income-tax Act :     " (I-A) If, in the case of any assessee, the Income. tax Officer has reason to believe-     (i)that  income, profits or gains chargeable to  income- tax have escaped assessment for any year in respect of which the relevant previous year falls wholly or partly within the period  beginning  on the 1st day of  September,  1939,  and ending on the 31st day of March, 1946; and     (ii)that  the  income,  profits or gain  which  have  so escaped assessment for any such year or years amount or  are likely  to  amount to one lakh of rupees or  more;  he  may, notwithstanding  that the period of eight years or,  as  the case  may  be, four years specified in  subsection  (1)  has expired  in respect thereof, serve on the assessee a  notice containing  all  or  any of the requirements  which  may  be included  in a notice under sub-section (2) of  section  22, and may proceed to assess or reassess the income, profits or gains  of the assessee for all or any of the years  referred to  in clause (1) and thereupon the provisions of  this  Act shall, so far as may be, apply accordingly     It  was  argued  in Mohta’s case as  well  as  in  these petitions that the classification made in section 5(1) of                             797 the impugned Act was bad because the word "substantial" used therein  was  a word which had no fixed meaning and  was  an unsatisfactory   medium  for  carrying  the  idea  of   some ascertainable   proportion  of  the  whole,  and  thus   the classification  being vague and uncertain, did not save  the enactment   from   the  mischief  of  article  14   of   the Constitution.   This  alleged  defect stands  cured  in  the amended  section 34 inasmuch as the Legislature has  clearly indicated in the statute what it means when it says that the object of the Act is, to catch persons who to a  substantial extent  had evaded payment of tax, in other words, what  was seemingly   indefinite  within  the  meaning  of  the   word "substantial"  has been made definite and clear by  enacting that  no  evasion  below a sum of one  lakh  is  within  the meaning  of that expression.  Again, the  classification  of section  5(1) was criticized on the ground that it  did  not necessarily  deal with persons who during the period of  war had  made  huge profits and evaded payment of tax  on  them. The  amendment made in section 34 has remedied  this  defect also.   The amended section clearly states that the  amended section  will  operate  on  income  made  between  the   1st September, 1939, and the 31st March, 1946, and tax on  which has been evaded.  It is thus clear that the new  sub-section



inserted  in section 34 by the provisions of Act  XXXIII  of 1954 is intended to deal with the class of persons who  were said  to  have  been classified  for  special  treatment  by section  5(1)  of Act XXX of 1947.   The  learned  Attorney- General  frankly conceded that to a certain extent  the  two sections  overlapped, but he urged that the overlapping  was not complete and that those remained still outside it  whose cases  had  already  been  referred  to  the   Investigation Commission.  We are unable to uphold this contention in view of  the clear language employed in the amended Act and  this contention is therefore negatives.      The  second contention raised by the learned  Attorney- General is, in our opinion, concluded by a number of earlier decisions  of this Court wherein it has been held that  when an  Act  is  valid in its entirety before the  date  of  the Constitution,  the part of the proceedings regulated by  the special procedure and 102 798 taken  during pre-Constitution period cannot  be  questioned however  discriminatory  it may have been, but that  if  the discriminatory procedure is continued after the date of  the Constitution,  then a person pre-judicially affected  by  it can legitimately ask why he is now being differently treated from  others similarly situate-vide Kesava Madhaya Menon  v. The  State of Bombay(1), and Lachmandas Kewalram  Ahuja  and Another  v. The State of Bombay(2).  The  same  propositions were re-stated by this Court in Syed Qasim Razvi v. State of Hyderabad(1),   and   in  Habeeb  Mohammad   v.   State   of Hyderabad(1).  In the cases of these petitioners, as already pointed  out,  the proceedings taken  by  the  Investigation Commission  against them under the discriminatory  procedure of  the impugned Act against them have not been com.  pleted and are pending and that being so, no justification  remains for  continuing  these proceedings against  them  under  the procedure  of the impugned Act when other persons  of  their class  and  having the same common  characteristics  can  be dealt with by the Income-tax Officer under the provisions of the amended Act and the procedure of the ordinary law of the land.        For  the  reasons given above we are of  the  opinion that  assuming the provisions of section 5(1) of Act XXX  of 1947  could be-saved from the mischief of Article 14 of  the Constitution  on the basis of a valid  classification,  that defence  is no longer available in support of it  after  the introduction  of  the new sub-section in section 34  of  the Income-tax  Act, which sub-section is intended to deal  with the same class of persons dealt with by section 5(1) of  the impugned  Act.   The result is that proceedings  before  the Investigation  Commission can no longer be  continued  under the procedure prescribed by the impugned Act.  We ’therefore direct  that  an  appropriate writ  be  issued  against  the Commission  prohibiting it from proceeding further with  the cases  of these petitioners under the provisions of Act  XXX of 1947.  In the peculiar circumstances of this case we make no order as to costs in these petitions.                                   Writ issued. (1) [1951] S.C.R. 228.      (3) [1953] S.C.R. 589 (2) (1952] S.C,R, 710      (4) [1953] S.C.R. 661, 799