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Petitioner: JAI KISHAN SRIVASTAVA VS Respondent: INCOME-TAX OFFICER, KANPURHonorable Justice BHARGAVAG. S. Pathak, G. P. Tandon and R. S. Pathak,J. Swarup and Gopal Behari
1960 P T D 1385
1960 P T D 1385
[Allahabad (India)]
Before Bhargava, Chaturvedi and Upadhya, JJ
JAI KISHAN SRIVASTAVA
Versus
INCOME‑TAX OFFICER, KANPUR, AND ANOTHER
Civil Miscellaneous Writs Nos. 397 and 469 of 1955, decided on 15th May 1959.
Income‑tax Act (XI of 1922)---
----Ss. 22, 23, 31, 33, 34 (1), (1‑A), 37, 66‑Re‑assessment‑Income of period falling within September 1, 1939, and March 31, 1946‑Special provisions for assessment for past years‑Constitutionality‑Re‑assessment‑Provisions as to appeal and reference‑Whether apply‑Proceedings under S. 34 (1-A)‑Principles of natural justice‑Whether violated‑Constitution of India Art. 14.
Held: (by Bhargava and Chaturvedi, JJ., Upadhya, J., dissent ing), (i) that in respect of proceedings for assessment or reassess ment under section 34 (1‑A) of the Income‑tax Act the procedure laid down in section 23 as well as the provisions of sections 31, 33, 37 and 66 were applicable. A proceeding for assessment or re‑assessment of income profits or gains under section 34 (1‑A) was, therefore, governed in the matter of procedure and in the matter of appeals and references to the High Court by the same provisions which governed a proceeding for assessment or re‑assessment under section 34 (1), and section 34 (1‑A) was not, discriminatory as compared with section 34 (1) and did not offend Article 14 of the Constitution of India.
(ii) That the removal of the restriction of limitation under section 34 (1‑A) in regard to a special class of persons out of a larger class of persons who could be dealt with under section 34 (1) had a nexus with the purposes for which the provision of law was introduced and the discrimination brought about by section 34 (1‑A) did not violate the provisions of Article 14 of the Constitution.
Held further, (by the Full Court), (i) that the essential feature of the principles of natural justice was that no person should be deprived, of any right by a judicial or quasi‑judicial order unless he had had a hearing before an independent authority who was, not interested in the proceedings or in any party to the proceedings. Under the Income‑tax Act this principle was complied with by providing appeals before the Appellate Assistant Commissioner and the Income‑tax Appellate Tribunal from an order of assess ment or re‑assessment of the Income‑tax Officer.
(ii) That, however, this principle of natural justice could not be invoked where it was done away with by a specific provision made in a statute by the Legislature. As in the Income‑tax Act the Income‑tax Officer was entrusted with 0se power of passing orders of assessment and re‑assessment by the Act itself which was enacted by the Legislature, the principles of natural justice could not be invoked.
Shree Meenakshi Mills Ltd. v. Viswanatha Sastri (1954) 26 I T R 713 relied on.
Suraj Mall Mohta & Co. v. Viswanatha Sastri (1954) 26 I T R 1 and Nageswara Rao v. Andhra Pradesh State Road Transport Corporation (1959) Suppl: (1) S C R 319 distinguished.
Badri Das Daga v. Commissioner of Income‑tax (1949) 17 I T R 209 ; Bengal Immunity Co. Ltd. v. State of Bihar (1955) 2 S C R 603 ; Commissioner of Income‑tax v. Jagdish Prasad Ram Nath (1955) 27 I T R 192 ; Commissioner of Income tax v. Khemchand Ramdas (1938) 0 1 T R 414 ; Gopalan v. State of Madras (1950) S C R 88 ; (1950) 2 M L J (S. C.) 42 ; Gordhandas Purshotham Das v. Eastern Cotton Co. (1959) S C R 346 ; Hira Devi v. District Board, Shahjahanpur (1952) S C R 11 22 ; Income tax Commissioner v. Gibbs (1942) 10 I T R Suppl. 121 ; Lakhi. Prasad Shah v. Income‑tax Officer, Central Circle. (Unreported) ; Mukhtar Singh v. State of U. P. A I R 1957 All. 297 ; Muthiah v. Commissioner of Income‑tax (1956) 29 I T R 390 ; Nageswara Rao v. Andhra Pradesh State Road Transport Corporation (1959) Suppl. (1) S C R 319 ; Nalinakhya Bysack v. Shyam Sundar Haldar (1953) S C R 533 ; Raghubir Singh v. Court of Wards, Ajmer (1953) S C R 1049 ; Rajendra Mills Ltd. v. Income‑tax Officer (1957) 32 I T R 439 ; Ram Prasad Narayan Sahi v. State of Bihar (1953) S C R 1129 ; Shree Meenakshi Mills Ltd. v. A. V. Viswanatha Sastri (1954) 26 I T R 713 ; Suraj Mall Mohta & Co. v. A. V. Visvanatha Sastri (1954) 26 I T R 1 and Thangal Kunju Musaliar v. M. Venkataehalam Potti (1956) 29 I T R 349 ref.
G. S. Pathak, G. P. Tandon and R. S. Pathak for Petitioner.
J. Swarup and Gopal Behari for Opposite‑Parties.
JUDGMENT
BHARGAVA, J.‑These two connected writ petitions under Article 226 of the Constitution have been referred for decision to the Full Bench as they raise important questions relating to the validity of certain provisions of the Income‑tax Act (hereinafter referred to as "the Act"). For convenience, I am giving the facts of one of these writ petitions which is numbered 397 of 1955 in which the petitioner is Jai Kishan Srivastava. The petitioner, on the basis of returns submitted by him to the Income‑tax Officer, Kanpur, was assessed to tax for the assessment years 1940‑41 to 1946‑47. Thereafter, on May 17, 1948, he received notices from the Secretary, Income‑tax Investigation Commission, by which he was informed that his case had been referred to the Commission under section 5 (1) of the Taxation on Income (Investigation Commission) Act, 1947. By these notices, the petitioner was directed to furnish to the Income‑tax Investigation Commission certain information and to comply with certain requirements mentioned therein. The petitioner, under the impression that the Commission had authority and jurisdiction to proceed with the investigation of the petitioner s case, supplied most of the information sought and complied with the various requisitions. The Income‑tax Investigation Commission did not, however, proceed to the stage of framing any charges against the petitioner or giving a hearing to him and was wound up before the proceedings could be completed, Thereafter, on December 29, 1954, the petitioner received seven notices purporting to be issued under section 34(1‑A) of the Act from the Income‑tax Officer, District I (ii), Kanpur, opposite‑party No. 1, calling upon him to submit returns of his total income assessable to tax for the seven assessment years mentioned above. The notices contained a mention that, in case the petitioner failed to file the returns as required, he was liable to ex‑parse assessment under section 23 (4) of the Act and also to penalty and prosecution. Thereupon, the petitioner sent a letter dated January 29, 1955, asking for two months' time to obtain legal advice arid to prepare returns. Time was allowed to him up to February 28, 1955. The petitioner asked for further time by his letter dated February 26, 1955, when he was informed by the Income‑tax Officer, Central Circle 1, Kanpur, opposite‑party No. 2, that his case had been transferred to his file and that no further time could be allowed, so that the petitioner must file his returns within three days. The petitioner made further representa tions and then he was allowed time up to March 25, 1955. The petitioner sent a letter dated March 24, 1955, requesting the opposite‑party No. 2 to supply him with the reasons for the issue of notices under section 34 (1‑A) of the Act, as recorded by him and forwarded to the Central Board of Revenue for their satisfac tion and grant further time to the petitioner ; but, by his letter dated March 31, 1955, opposite‑.party No. 2 refused these requests. Thereupon, the petitioner, under protest, filed his returns of income. The petitioner also pointed out to opposite‑party No. 2 that, according to him, the notices were bad in law and untenable and requested the opposite‑parties, viz., both the Income‑tax Officers, to recall the notices and to abandon the proceedings being taken under them, but the opposite‑parties did not accept this request. Thereupon, the petitioner moved this petition on April 25, 1955, and this Court, when admitting the petition, passed an interim order restraining the opposite‑parties from taking any steps in pursuance of the notices given to the petitioner under section 34 (1‑A) of the Act.
The validity of the notices and the proceedings being taken under these notices were challenged by the petitioner on a number of grounds but only two grounds need detailed consideration in this case, because, though the other grounds were not given up by Mr. Pathak who argued the case on' behalf of the petitioner, he did not advance any arguments before us in respect of those grounds. The two grounds for challenging the notices and the proceedings which were urged before the Full Bench, were : (1) that section 34 (1‑A) of the Act was ultra vires Article 14 of the Constitution as it denied equality before the law because persons who could be dealt with under section 34 (1‑A) could also be dealt with under section 34 (1) of the Act, and (2) that the proceed ings which were being taken by the Income‑tax Officer were of a judicial or quasi judicial nature and the Income‑tax Officer was a person who had a bias because he or the Central Board of Revenue under whom he was employed, was interested as a party in these proceedings. These are the two points that mainly need con sideration by us.
In considering the first point, which has been raised before us, section 34, which has to be interpreted by us, must be read as it stood in the year 1954, when these seven impugned notices were issued to the petitioner. In section 34 (1), the relevant provision is that which relates to clause (a) and which, after omitting the parts relevant to clause (b) reads as follows :
"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 relief under the Act, or excessive loss or depreciation allowance has been computed, . . . he may in cases falling under clause (a) at any time within eight years . . . 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 reassess such income, profits or gains or recompute the loss or deprecia tion 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 subsection:
Provided that‑
(i) the Income‑tax Officer shall not issue a notice under this subsection, unless he has recorded his reasons for doing so and the Commissioner is satisfied on such reasons recorded that it is a fit case for the issue of such notice ;
(ii) the tax shall be chargeable at the rate at which it would have been charged had the income, profits or gains not escaped assessment or full assessment, as the case may be ; and
(iii) where the assessment made or to be made is an assess ment made or to be made on a person deemed to be the agent of a non‑resident person under section 43, this subsection shall have effect as if for the periods of eight years . . . . . a period of one year was substituted.
Explanation.‑Production before the Income‑tax Officer of account books or other evidence from which material , facts could with due diligence have been discovered by the Income tax Officer will not necessarily amount to disclosure within the meaning of this section."
This was the language of section 34 (1) (a), as introduced by the Income‑tax and Business Profits Tax (Amendment) Act, 1948. In the year 1954, the Income‑tax (Amendment) Act, 1954, was passed and it came into force on July 17, 1954. By this Amendment Act, amongst other changes introduced in the Act, a new subsection (1‑A) was introduced in section 34 which reads as follows:
"(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 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. . . . has expired in respect thereof, serve on the assessee, or, if the assesses 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 subsection (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 (i), and there upon the provisions of this Act (excepting those contained in clauses (i) and (iii) of the proviso to subsection (1) and in subsections (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 subsection 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."
On the language of these two provisions, Mr. R. S. Pathak, who very ably argued this case before us, urged that the Legisla ture had introduced two very important discriminations in the matter of procedure and limitation applicable to cases of persons who may be dealt with under one provision or the other. In the case of a person dealt with under section 34 (1) (a), a notice could be issued only within eight years of the end of the assessment year to which the notice related and, upon the issue of such a notice the Income‑tax Officer, in proceedings to assess or reassess the income, profits or gains, was to be guided, in the matter of pro cedure, by the procedure laid down in section 23 and the following sections of the Act. On the other hand, in the case of a person on whom notice is issued under section 34 (1‑A), there would be no period of limitation for issue of the notice and the procedure applicable to persons proceeded against under section 34 (1) (a) would not apply, so that such a person would not have the benefit of the procedure given in section 23 and the subsequent sections of the Act and would also not have a right of appeal to the Appellate Assistant Commissioner or the Income‑tax Appellate Tribunal, nor a right to seek a reference to the High Court. It was further urged that persons whose cases may be covered by section 34 (1‑A) of the Act, would also be governed by the pro visions of section 34 (1) (a) of the Act, so that two different procedures can be applied at the choice of the Income‑tax authorities to two persons similarly situated.
The interpretation by learned counsel for the petitioner that the procedure applicable to proceedings for assessment or reassess ment or recomputation under section 34 (1) (a) of the Act would be that laid down in section 23 of the Act is undoubtedly correct. Under section 34 (1) (a) of the Act, the Income‑tax Officer is firstly authorised to serve a notice, in the circumstances mentioned therein, on the assessee or the principal officer of the company, if the assessee is a company, which notice may contain all or any of the requirements which may be included in a notice under sub section (2) of section 22 and, upon the service of such a notice, the Income‑tax Officer is authorised to take proceedings for assessment or re‑assessment or recomputation. Then comes the direction that the provisions of the Act shall, so far as may be, apply accordingly as if the notice were a notice issued under subsection (2) of section 22 of the Act. This section thus contains a fiction of law which has been introduced for the purpose of making the procedure laid down in section 23 of the Act applicable to the proceedings for assessment, re‑assessment or recomputation taken by the Income‑tax; Officer in pursuance of a notice issued under section 34 (1) (a). The fiction of law is introduced by using the words "as if the notice were a notice issued under that subsection." Clearly, the effect of this fiction of law is that, even though a notice under section 34 (1) (a) is different from a notice under subsection (2) of section 22 of the Act, the Income‑tax Officer, in taking proceedings for assessment, reassessment or recomputation, has to comply with the provisions of the Act which apply when he takes proceedings for assessment in pursuance of a notice under subsection (2) of section 22 of the Act. The further submission of learned counsel was that in section 34 (1‑A) no such fiction of law has been introduced by the Legislature. In this provision of law, the circumstances under which a notice can be issued are slightly different and limited ; but, when a notice has been served in accordance with that provision of law, the power granted to the Income‑tax Officer is to proceed to assess or reassess the income, profits or gains of the assessee for the years in question. Then it is laid down, "there upon the provisions of the Act (excepting those contained in clauses (i) and (iii) of the proviso to subsection (1) and in sub sections (2) and (3) of this section) shall, so far as may be, apply accordingly." In using this language, the Legislature made a departure inasmuch as ii did not plainly lay down that a notice issued under section 34 (1A) is, by fiction of law, equated with a notice under subsection (2) of section 22 of the Act and it was urged that an inference should be drawn from this omission that the provisions of section 23 of the Act would not apply to proceed ings for assessment or reassessment under section 34 (1A) of the Act. The further inference, which learned counsel drew, was that, since the procedure laid down in section 23 could not be applied, the Income‑tax Officer, in proceeding to make the assessment or reassessment, would have to discharge his functions as a quasi -judicial tribunal in accordance with the principles of natural justice. When called upon to explain what those principles of natural justice would be, learned counsel urged that the principles of natural justice would be the same as have been given statutory form in section 23 of the Act with regard to the making of inquiries and to giving a hearing to an assessee. It was, however, urged that, since the provisions of section 23 of the Act would not in terms apply, no right of appeal under section 31 would accrue to an assessee against whom proceedings for assessment or reassessment are taken under section 34 (1A), so that, even though at the initial stage, the Income‑tax Officer would give a proper hearing to the assessee, the right to go up in appeal to the Appellate Assistant Commis sioner, by a further appeal to the Income‑tax Appellate Tribunal or by a reference to the High Court would be denied to him. A further result would be that the assessee would not have the same rights of inspection and discovery which would be available to an assessee against whom proceedings are taken under section 34 (1A) of the Act. This interpretation of section 34 (1A) was sought to be supported by reference to the circumstances in which this provision was introduced by the Legislature in 1954. Just before this provision was introduced, the Supreme Court gave its decision in the case of Suraj Mall Mohta & Co. v. A. V. Viswanatha Sastri ((1954) 26 I T R 1). In that decision, the Supreme Court declared the provisions of section 5 (4) of the Taxation on Income (Investigation Commission) Act (XXX of 1947) ultra vires Article 14 of the Constitution. One of the main considerations for the Supreme Court in declaring that provision of law ultra vires was that the procedure applicable to a person proceeded against under that provision of law was materially and substantially different from the procedure applicable to a person similarly situated who could be proceeded against under section 34 of the Income‑tax Act. It was urged that section 34 (1A) was introduced in the Act for the purpose of taking proceedings against those very persons who could be proceeded against under section 5 (1) or 5 (4) of the Taxation on Income (Investigation Commission) Act, 1947, because section 5 (4) of that Act was declared ultra vires by the Supreme Court and it was apprehended that section 5 (1) of that Act would also be similarly declared ultra vires. In order to achieve that purpose, the Legislature, when introducing section 34 (1A) in the Act, did not desire that persons, against whom pro ceedings are taken under the Act, should be able to avail of all the ordinary remedies provided in the Act and wanted that the Income‑tax Officer should be able to take proceedings for assess ment or reassessment of such persons with as much success as the Income‑tax Investigation Commission could do under Act XXX of 1947. It was thus contended that the fiction of law, which had been introduced in section 34 (1) (a) was deliberately omitted by the Legislature with the aforesaid object and, con sequently, the provisions of section 34 (1A) of the Act should be interpreted as not including in it the applicability of the procedure for assessment laid down in section 23 of the Act and the conse quent application of the provisions contained in sections 31, 33 and 66 of the Act.
It appears to me that there are several reasons why such an interpretation should not be accepted. The first and the most important reason is that, in my opinion, the language used in sections 23, 34 (1) (a) and 34 (1A) of the Act by itself leads to the interpretation that, even in respect of proceedings for assess ment or reassessment under section 34 (1A) the procedure laid down in section 23 has been made applicable and so also the provi sions of sections 31, 33 and 66 of the Act have been made applicable to those proceedings. In section 23 of the Act, the Legislature has laid down the procedure which the Income‑tax Officer has to follow in proceedings for assessment of the income, profits and gains of an assessee and for determination of the tax payable by him. Under section 34 (1) (a), the proceedings, which the Income‑tax Officer is authorised to take after service of notice, are of three different kinds. Firstly, he can proceed to assess the income, profits and gains in case the income, profits or gains have escaped assessment. Secondly, he can reassess the income, profits or gains in case they have been under‑assessed. Thirdly, he can recompute the loss or depreciation allowance if excessive loss or depreciation allowance had been computed at the time of original assessment under section 23 of the Act. If, under this provision, the only power, which the Legislature granted to the Income tax Officer, had been the power to assess the income. profits and gains of an assessee which had escaped assessment, it seems to me that there would have been no necessity fox mentioning the fiction of law that the provisions of the Act would apply as if the notice issued under this provision of law were a notice issued under subsection (2) of section 22 of the Act. 'The Legislature having once laid down the procedure for assessment of income, profits or gains need only have laid down in section 34 (1) (a) that the provisions of the Act shall, so far as may be, apply accordingly. The mere use of this language would have been enough t(r attract the applicability of the pro visions of section 22 to the proceedings for assessment taken under section 34 (1) (a) of the Act. Section 34 (1) (a), how ever, envisages proceedings of two other types, viz., proceedings for reassessment of income, profits or gains, and proceedings for recomputation of loss or depreciation allowance. A proceed ing for recomputation of loss or depreciation allowance could also be held to be governed by the provisions of section 23 of the Act because computation or recomputation would only be an intermediate step to making the assessment. Reassessment under section 34 (1) (a) is, however, different from a proceeding for assessment. No doubt in a number of sections of the Act, the words "assess" or "assessment" have been used so as to include in them "reassess" or "reassessment" but at least in section 34 (1) (a) of the Act the word "assess" cannot be held to include `reassess" as both the words are used with a disjunctive "or" between them. Consequently, so far as section 34 (1) (a) of the Act is concerned, it makes a distinction between a proceeding for assessment and a proceeding…
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