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Radheshyam Makhanlal v/s The Union of India & Others

    Misc. Appln. No. 263 of 1957

    Decided On, 10 August 1959

    At, High Court of Judicature at Bombay

    By, THE HONOURABLE MR. JUSTICE SHAH & THE HONOURABLE MR. JUSTICE S.T. DESAI

    For the Petitioner: M.P. Amin, M.M. Desai, S.P. Mehta, Advocates. For the Respondents: M.C. Setalvad, Attorney-General of India, R.J. Joshi, Advocate.



Judgment Text

1. In this petition two questions fall to be determined : (i) whether the Union Parliament was competent to enact Sec. 3 of the Indian Income-tax (Amendment) Act, 1959 (Act No. 1 of 1959) whereby Sec. 49EE was incorporated in the Indian Income-tax Act, 1922, prohibiting the entertainment of claims for refund of money paid or security furnished pursuant to settlements relating to assessment or re-assessment and conferring power upon the Income-tax Officer, Appellate Assistant Commissioner or the Commissioner to set off in certain cases moneys in the possession of Government against tax found due in proceedings for assessment under the provisions of Sec. 34 of the Indian Income-tax Act ? and (ii) whether this Court is competent to issue a writ under Art. 226 of the Constitution of India compelling the Union of India to refund an amount of money or to return the securities collected or received pursuant to a settlement recorded under the procedure prescribed by Act 30 of 1947 which has since been declared ultra vires the Union Parliament ?

2. In order to appreciate the contentions advanced at the Bar, it is necessary to set out in some detail the legislative history and the effect of certain decisions of their Lordships of the Supreme Court concerning the power of assessment or re-assessment of assessee for the levy and collection of income-tax. Under Sec. 34 of the Income-tax Act, before it was amended by Act 48 of 1948, the Income-tax Officer was competent to serve on the person liable to pay tax a notice requiring him to furnish a proper return and to proceed to assess or re-assess the income, profits or gains, if in consequence of definite information which had come into his possession the Income-tax Officer discovered that income, profits or gains chargeable to income-tax had escaped assessment in any year or had been under-assessed or had been assessed at too low a rate, or had been the subject of excessive relief under the Income-tax Act, or where the Income-tax Officer had reason to believe that the assessee had concealed the particulars of his income or deliberately furnished inaccurate particulars thereof. It is a matter of common knowledge that during the period of the last War large fortunes were made by business-men and controls imposed by States on prices and distribution of commodities were often evaded and secret profits were made and kept out of the books and were often invested in shares and immoveable properties acquired in the name of benamidars or in the purchase of gold, silver and jewellery. With a view to assess this evaded income, the Legislature enacted the Taxation on Income (Investigation Commission) Act, 1947 (Act 30 of 1947). By Sec. 3 of the Act power was conferred upon the Central Government to constitute a Commission to be called the Income-tax Investigation Commission 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 was adequate to prevent the evasion thereof, and to investigate in accordance with the provisions of the Act any case or points in a case referred to it under Sec. 5 and make a report thereon in respect of all or any of the assessments made in relation to the case. By Sec. 5(1) the Central Government was authorised to refer to the Commission before a specified date for investigation and report any case or points in a case in which the Central Government had prima facie reasons for believing that a person had to a substantial extent evaded payment of taxation on income, together with such material as may be available in support of such belief. By sub-sec. (2) of Sec. 5 the Commission was authorised to examine the material submitted by the Central Government with reference to any case or points in a case and make such investigation as it considered necessary, and the Commission was to report to the Central Government if in its opinion further investigation was not likely to reveal any substantial evasion of taxation on income. By sub-sec. (3) the jurisdiction of the Courts to call in question the reference made by the Central Government under sub-sec. (1) or to investigate into the sufficiency of the material on which such a reference was made was excluded. By sub-sec. (4) it was provided :

'If in the course of investigation into any case or points in a case referred to it under sub-sec. (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 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 sub-sec. (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.""

By Act 49 of 1948, the words and figures '30th day of June 1948' - being the date prescribed before which the reference was to be made - wherever they occurred in Sec. 5 of Act 30 of 1947 were substituted by the words and figures '1st day of September 1948'. It is evident that by sub-sec. (1) of Sec. 5 authority was conferred upon the Central Government to refer a case to the Commission for investigation before the date prescribed; and by sub-sec. (4) it was open to the Central Government even after the date prescribed, to refer to the Commission for investigation any case which has come to its notice on a report made by the Commission that some person other than the person whose case was being investigated had evaded payment of taxation on income, or that some points other than those referred to it by the Central Government in respect of any case also required investigation. By Sec. 6 certain powers were conferred upon the Commission to examine any accounts or documents, and by Sec. 7 the procedure of the Commission was prescribed. By sub-sec. (2) of Sec. 8 it was provided that the Central Government shall, after considering the report made by the Commission, direct that such proceedings as it thinks fit under the Indian Income-tax Act, 1922, or 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 31-12-1938; and upon such a direction such proceedings may be taken and completed under the appropriate law notwithstanding the restrictions contained in S. 34 of the Indian Income-tax Act, 1922, or Sec. 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. By sub-sec. (4) of S. 8, it was declared that in all assessment or re-assessment proceedings taken in pursuance of a direction under sub-sec. (2), the findings recorded by the Commission on the case or on the points referred to it were, subject to the provisions of sub-sees. (5) and (6), final; and that no proceedings taken in pursuance of such direction shall be a bar to the initiation of proceedings under Sec. 34 of the Indian Income-tax Act, 1922.

3. By Act 67 of 1949 Sec. 8A was added to Act 30 of 1947. That section provided machinery for settlement of cases under investigation. By sub-sec. (1) of Sec. 8A the Commission was authorised to entertain an application of any person in any case referred to or pending before the Commission for investigation to have the case or any part thereof settled in so far as it related to him, and if the Commission was satisfied that the terms of the settlement may be approved, it should refer the matter to the Central Government, and if the Central Government accepted the terms of such settlement, the same were to be recorded by the Commission and thereupon the investigation, in so far as it related to matters covered by such settlement was to be deemed to be closed. Sub-section (2) of Sec. 8A provided for the enforcement of the terms of any settlement arrived at in pursuance of sub-sec. (1). By sub-sec. (3) it was provided, in so far as it is material, that subject to the provisions of sub-sec. (6) of Sec. 8, any settlement arrived at under Sec. 8 shall be conclusive as to the matters stated therein, and no person whose case had been so settled shall be entitled to reopen in any proceeding for the recovery of any sum under Sec. 8 or in any subsequent assessment or reassessment proceeding relating to taxation on income any matter which formed part of such settlement. By sub-sec. (4) it was provided that where a settlement had been accepted by Government under sub-sec. (1), no proceedings under Sec. 34 of the Income-tax Act, 1922, or under Sec. 15 of the Excess Profits Tax Act, 1940 shall be initiated in respect of the items of income covered by the settlement, unless the initiation of such proceedings was expressly allowed by the terms of the settlement.

4. Pursuant to Sec. 8, in several cases assessments were made by the Commission and in certain cases the persons concerned in the cases referred to or pending before the Commission agreed to settle the cases pending and settlements were duly recorded by the Commission.

5. In the meanwhile, S. 34 of the Indian Income-tax Act was amended by the Income-tax and Business Profits Tax (Amendment) Act, 1948 (Act 48 of 1948). Under Sec. 34, after it was amended, if (a) the Income-tax Officer had 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 Sec. 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 had escaped assessment for that year, or had been under-assessed, or assessed at too low a rate, or had been, made the subject of excessive relief under the Act, or excessive loss or depreciation allowance had been computed, or (b) notwithstanding that there had been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer had in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax had escaped assessment for any year, or had been under-assessed, or assessed at too low a rate, or had been made the subject of excessive relief under the Act, or that excessive loss or depreciation allowance had been computed, he could issue a notice within the time prescribed upon the assessee and proceed to assess or re-assess such income, profits or gains or recompute the loss or depreciation allowance.

6. Section 34(1) was amended presumably because it was apprehended that a large number of cases may be traced which did not fall within Sec. 5(4) of the Taxation on Income (Investigation Commission) Act and which could not be referred for investigation to the Commission. These cases had to be dealt with under the ordinary procedure for assessment or re-assessment under Sec. 34 of the Income-tax Act. Under Sec. 34, before it was amended in 1948, definite information coming into the possession of the Income-tax Officer in consequence of which it was discovered that income, profits or gains chargeable to income-tax had escaped assessment was a condition precedent to the exercise of jurisdiction to issue a notice upon the assessee and to the assessment or reassessment of such income, profits or gains. It was thought necessary to tone down the rigour of this provision and accordingly by the amended S. 34 it was provided that the Income-tax Officer may, if he has reason to believe that by reason of the omission or failure on the part on an assessee to make a return of his income under Sec. 22 or to disclose fully and truly all material facts necessary for his assessment, income, profits or gains chargeable to income-tax had escaped assessment, proceed to assess or re-assess such escaped income, profits or gains. By the amendment of Sec. 34 in that manner, the Government was able to convey the information which it collected in regard to substantial evaders of income-tax to the income-tax authorities concerned and to ask them to take proceedings against those evaders under the amended Act. The Commission was, therefore, competent to proceed to make an investigation in respect of cases referred to it under Sec. 5(1) and also under Sec. 5(4); and in respect of cases not so referred the Income-tax Officer was, relying upon the information supplied by the Government or otherwise coming to his knowledge, able to assess or re-assess the income of tax-evaders. It is evident that after the amendment of Sec. 34 of the Income-tax Act by Act 48 of 1948 there were in respect of tax-payers two procedures simultaneously in operation : one under Act 30 of 1947 applicable to persons whose cases had been referred to the Commission and the other under Sec. 34 of the Income-tax Act applicable to persons whose cases were not so referred. The procedure prescribed by Act 30 of 1947 was drastic and summary and the decisions of the Commission were made final, whereas under Sec. 34 of the Income-tax Act the assessees to whom notices for assessment or reassessment were issued, had diverse rights which were denied to the assessees whose cases were referred to the Commission under Act 30 of 1947. This was a clear case of discrimination between persons falling in the same category and otherwise similarly situated. But before the Constitution came into force on 26th January 1950 legislation was not liable to be struck down as ultra vires on the ground of discrimination between the same class of persons similarly situated. Since the enactment of the Constitution, the provisions of Sec. 5(4) of the Taxation on Income (Investigation Commission) Act, 1947, became prima facie discriminatory.

7. The validity of Section 5, sub-section (4) of the Taxation on Income (Investigation Commission) Act, 1947, was challenged before the Supreme Court in Suraj Mall Mohta and Co. v. Visvanatha Sastri, (1955) 1 SCR 448 : (AIR 1954 SC 545). In that case, the case of Messrs. Jute and Gunny Brokers, Ltd., was referred for investigation to the Commission under Sec. 5(1) of Act 30 of 1947, and the Commission discovered in the course of that investigation that Messrs. Suraj Mall Mohta and Co., had made secret profits which they had not disclosed and had evaded tax payable thereon. A report was then made by the Commission to the Central Government, and the Central Government referred the case to the Commission under Sec. 5(4). On receiving intimation from the Commission that their case had been referred for investigation to the Commission under Sec. 5(4) of Act 30 of 1947, Messrs. Suraj Mall Mohta and Co., filed a petition under article 32 of the Constitution p

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raying for an appropriate writ restraining the Commission from taking action against them under the provisions of Act 30 of 1947, on the ground that ce