SURAJ MALL MORTA AND CO. versus A. V. VISVANA THA SASTRI AND ANOTHER.

1954

Kishan !Al and Anotht1 v. iBJianwar Lal.

Mr1/du:~ita J.

•954

Atay 28.

448

SUPREME COURT REPORTS

[19551

is that we set aside the of the notification. The result the. case back judgments of the Courts below and send to the Original Court of Jodhpur in order that it may be tried on all the other issues raised in the suit after giving opportunity to adduce such the evidence as they want ,to adduce. The plaintiffs appel lants will have their costs up to this stage. Further costs will abide the resu It.

parties

to

Order accordingly.

SURAJ MALL MORTA AND CO.

ti. A. V. VISVANA THA SASTRI AND ANOTHER. [MEHR CHAND MAHAJAN C.J., s. R. DAS, VIVIAN BosE, BHAGWA11 and VENKATARAMA AYYAR JJ.] Taxation on l11r.rnne

(Investigation Cotnmission) Act

(XXX of 1947) ss. 5(1), 5( 4)~Extent aad range different-S. 5( 4) and s. 34 of Indian Income-tax Act (XI of 1922)-Deal tvith same class of persons-Properties and characteristics san1e-Procedure under the ttvo Acts diffi:rent-Section 5( 4)-lf1hether ultra vires Art. 14 of the Constitution.

the

Sub~section ( 4) of

section 5 of the Taxation on

Income (Investigation Com1nission) Act, 1947, does not deal 'vith the same class of persons as are said to have been grouped together in sub section ( l) of ~section 5 of the Act as persons \Vho to a substantial extent eyaded payment of taxation on income. On a plain reading ( 4) of section 5 is not of the section limited only to persons \\'ho made extraordinary profits and to all persons who 1nay have evaded payment of taxation on income irrespective of \Vhethcr substantial or insubstantial and therefore the scope of sub-section ( 4) of section 5 .A. is different from the scope of sub-section ( 1) of extent and range ..

it is clear that sub-section

section 5 both in

evaded

profits

the

are

•

-

-+

-

Sub-section ( 4) of section 5 of the Act, obviously deals

\Vi th the same class of persons who fall within the arnbit of section 34 of the Indian Incotne-tax Act an<l are de.1lt with in sub-section (1) of that section and \Vhose inco1ne can be caught by the proceeding under that section.

It is not possible to hold that all such pc·rsons \Vho evaded

payment of income-tax and do not or material facts necessary for their assessment an<l against whom a report is made undef sub-section ( 4) of section 5 of the impugned

disclose

all particulars A

truly

S.C.R.

SUPREME COURT REPORTS

449

Act by themselves form a class distinct ment of income-tax and come. within Indian Income-tax Act.

from those who evade pay the ambit of section 34 of the

Both section 34 of the Indian

Income-tax Act, 1922, and sub section (4) of section 5 of the Taxation on Income (Investigation Commission) Act, 1947, deal with all persons who have similar the common characteristics characteristics and similar properties, being that they are persons who have not their truly disclosed income and have evaded payment of taxation on incqipe.

The procedure prescribed by the Taxation on Income (Investi gation Commission) Act, 1947, is substantially more prejudicial an.cl more drastic the procedure under the Indian Income-tax Act (XI of 1922).

to the assessee than

1954

Suraj Mall Mahliz and Ca. v • A. V. Visvanatha. Sastri and Anal he~.

•

,,.,

-

-

ll eid, therefore

that sub-section ( 4) of section 5 and

the pro cedure 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.

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,

Mukherjea and B. P. Maheswari, with them) petitioner.

(B. Sen, A. K. the for

C. K. Daphtary, Solicitor-General for India, (Porus res

A. Mehta and P. G. Gokhale, with him) pondents.

the

for

1954. May 28. The Judgment of

the Court was

delivered by

MEHR CHAND MAHAJAN C.J.-The prin~ipal q~es­ tion canvassed in this case is whether certam sections of the Taxation on Income (Investigation Commission) i.e., Act XXX of 1947, have become void Act, 1947, the date of the commencement of the Consti from the tution of Constitution.

reason of article 14 of

India

by

registered under is also

The petitioner, Suraj Mall Mohta & Co. Ltd., is a Indian Companies Act. the company -0£ Suraj Mall Mohta the managing· director 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

1954

Surqj Mall Mohta and Co. v. A. V. Visvanatha · Sastri and Another~

Mehr Chand Mahajan C. J.

'

450

SUPREME COURT REPORTS

[1955)

records of

it was said

the Commission, and during

1st September, 1948, of the case of Messrs. Jute and Gunny )3rokers Ltd. Investigation Commission to the appointed under Act XXX of 1947. During the investigation of that case which was numbered 831/30 in the the investigation of some other cases similarly referred to the Commission, 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 Govern ment under the Act requesting . that the case of the petitioner along with the cases of Suraj Mall Mohta and other members of his for investigation.

the provisions of section 5 ( 4) of

to the Commission

family may be

referred

to

the

the 9th September, 1953, the Central Government these cases Investigation Commission the provisions of section 5( 4) of the Act and the the that their cases had for investigation and they were called tn

. On referred under these were numbered 831/64-69 on the records of Commission. On the 15th of September, 1953, Commission notified been referred furnish certain material, upon Annexure "B" of the petition, to the Commission.

the petitioners

as detailed

to

restraining

On the 12th April, 1954,

the present petition under article 32 of the Constitution was filed for the issue of from appropriate writs taking any action against 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.

the Commission the petitioner under

the

In order

to appreciate

respective contentions the raised and canvassed before us on behalf of petitioner company and is necessary to set ·out some of the relevant provisions of the Act. The object of die Act as stated to its Preamble was in incidence of taxation on the actual ascertain whether in recent years had been in accordance with income

the State,

it

-

+

-

1954

Suraj Mall Mohta and Co. v. A. V. Visoanatha Sastri and An•ther.

Mehr Chand Mahajan C. J. ,

j

' -

SUPREME COURT REPORTS

451

Income-tax

to investigate and

th~reof. Section 3

Investigation Commission,

prov1S1ons of law and whether the procedure for assess to prevent ment and recovery of tax was adequate the Central evas10n authorizes to be called Government to constitute a Commission, its duty the the Central being (a) Government on all matters taxation on mcome, with particular reference to the extent to which the existing law relating the assessment and collection of such taxation is adequate to prevent in thereof ; accordance with the provisions of this Act any case or points m 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 :-

to, and. procedure for,

report to relating to

(b) to investigate

the evasion

the

"5 ( 1 )-The Central Government may at any

time before 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 prim a f acie reasons for believing that a person has to a substantial extent evaded payment of taxation on mcome, together with such material as may be avail able m support of such belief, and may at any time before the Commission for the withdrawal of any case or points in a case thus referred ........... .

the 1st day of September, 1948, apply to

(2) .. -.............................. . (3) No reference made by the Central Government the first day 111 question, nor the sufficiency of the material on which such a in any manner

under sub-section (1), at any time before of September, 1948, shall be called shall reference has been made be investigated by any Court. ( 4) If in or points m a case the Commission has reason to believe-

the course of investigation into any case referred to it under sub-section ( 1),

( a) that

some whose case is being of taxation on income, or

person the person investigated has evaded payment

other

than

(b) that some points other

referred to it by the Central Government in respect of any case

those

than

1954

Suraj Mall Mohla and Co. v. A. V. Visvanatha Sastri awl A11uther.

MehrC/ltllld Mahajan C. J.

452

SUPREME COURT REPORTS

[1955]

investigation,

it may make a report to the also require its reasons for such belief Central Government stating the Central Government and, on receipt of such report; notwithstanding shall, sub section (1), forthwith refer to the Commission for investi gation the case of such other person or such additional points as may be indicated in that report."

. contained

anything

in

The powers possessed by

the Commission while conducting an investigation are provided for in section 6 which is in these terms :

if

so

have

power

"6(1)-The Commission shall

to reqmre any person or banking or other company to furnish on or before a specified date prepare and written statements of accounts and affairs verified in such manner as may be prescribed by the Commission required by the Commission, also duly and, verified by a qualified auditor, giving information on the opinion of such points or matters as the 111 Commission may, directly or indirectly, be useful for, or relevant to, any case referred to it, and any person or banking or other company required shall be bound, notwithstanding any law to the contrary, to' comply with such requirement. (2) The Commission

to administer oaths, and shall have all the powers of a the Code of Civil Procedure, 1908, civil for the purposes . of taking evidence .on oath, enforcing the attendance of witnesses and of persons whose cases the production of are being documents and the examina tion of witnesses.

shall also have power

issuing comm1ss10ns for

investigated, compelling

,court under

so

(3) If in the course of any investigation it appears to examine any to be necessary to the Commission accounts or documents or to interrogate any person or the Commis obtain any statements from ~ny person, authority not authorize any mcome-tax s10n may below the rank of Income-tax Officer in that behalf ....

( 4) The authorized official the same powers as; direction of the Commission have the Commission under sub-sections (1) and (2), andl

subject

shall

to

the .

'

-

-

•

•

,i.

1954

Suraj Mall Mohta and Co. v • A. V'. Visvanath11< Sastri and Anothtr.

MehrCh4nd Mahajan G. ].

•

•

-

,

•

S.C.R.

SUPREME COURT REPORTS

453

any person having charge or custody of accounts or documents shall notwith law to the contrary be bound standing anything to produce them ...... ,, ...... .

to be examined

required

in any

its

the

judgment and may

from the person by way of penalty

(5) If any person whose case or the points

ip whose case is or are being investigated by the Commis sion refuses or fails to attend in person in compliance in that behalf duly served upon him or with a notice to give any evidence or to answer questions or to produce documents or to prepare and furnish state ments when called upon the Commission to do so, the may, if satisfied that refusal or failure was wilful, close investigation of the case and proceed to draw up its report on the case or on the points to the best of in its discretion also direct that such sum as it may specify in the direction shall for be recovered 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 to be in person or banking or other company possession of any information or document which may, directly or indirectly, be useful for, or relevant to, any case to he reported by the Central Govern ment under the provisions of sub-section ( 4) of section 5, the the Commission and subject to the direction of Commission any authorized official, may make en it or he may deem fit and quiries 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 the Commission and the authorized any such enquiry, official shall have all the powers conferred on them by sub-sections (1), (2), (2A), (3) and (4).

referred to the Commission

it or any case likely

in such manner as

is likely

to

(8) All materials gathered by the Commission or the authorised official and materials accompanying the reference under sub-section (1) of section 5 may be brought on record at such stage as the Commission may think fit."

Suraj Mall Mohta and Co. v. A. V. Visvanatha Sastri and Another.

Mt:hrChand Mahajan C.J.

454

SUPREME COURT REPORTS

[1955]

to

regulate

The procedure

its own procedure and

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 the powers of the Commission under sub-sections (1), (2), (3), (7) and (8) of section 6 and sub-sections (2), (4) and i.e., section 7 may be exercised by ( 6) of this section, any member thereof authorised by the Commission m this behalf. Sub-section (2) of section 7 provides as follows:-

that

"7(2)-In making an investigation under clause (b) of section 3, the Commission shall act in accordance justice, shall follow as with the principles of natural Indian Evidence far as practicable the principles of the Act, 1872, and shall give the person whose case is being investigated, a reasonable opportunity of rebut ting any evidence adduced against him : and the power of to compel production of documents limitation the imposed by section 130 of the Indian Evidence Act, 1872, and the Commission shall be deemed to, be a Court and its proceedings the purposes of .sections 5 and 6 of the Bankers' Books Evidence Act, 1891."

the Commission shall not be

legal proceedings

subject

for

to

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 the course of an enquiry under sub-sections (3) and (7) of section 6."

to be present or

represented in

to be

is not entitled

The result of

the assessee he

these provisions

that when the is Commission is collecting the materials from different sources again'st to be present at those stages and take part in the enquiry, the but after the material record then he can be present and has to be given a that reasonable opportunity of rebutting any evidence may . have been .collected against him. Sub-section ( 4) in for considerable criticism of section 7 which came provides as follows :-

ready and is placed on

is

•

•

-

\

•

S.C.R.

SUPREME COURT REPORTS

455

"7(4)-No person shall be entitled to

inspect, call for, or obtain copies of, any documents, statement or to, obtained by or pro papers or materials furnished any authorized duced before, official the Commission and after the Commission has ceased to the Central Government may exist such authority as in in its discretion, allow such inspection and furnish such copies to any person :

in any proceedings under this Act ; but

this behalf appoint, may,

the Commission or

1954

Sut'aj Mal I Mohta and Co. v. A. V. Visvanatha, Sastri and Another.

Mehr Chand Mahajan C. ].

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 this Act, be furnished prescribed by rules made under st~tements, papers with certified copies of documents, and materials brought on the record by the Commis sion."

Sub-section (5) of section 7 is in these terms :- "7 (5)-Save in cases

the Commission may exercise its powers under section 195 and Chapter XXXV of the Code of Criminal Procedure, 1898,

in which

(a) no suit, prosecution or other legal proceeding shall be instituted against any person in any civil or criminal Court for any evidence given or produced by the Commission, and him in any proceedings before (b) no evidence so given or produced shall be in evidence against such person in any suit,. such Court, the Central

admissible prosecution or other proceeding before except with sanction of the previous Government." The

in for objection is sec

that .came

last section tion 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 report of the Commission shall be in accord ance with the opinion of the majority.

the

(2) After

considering Government shall by order in writing direct

report,

the

the Central that such

~954

.Surai Mall Mohla · and Co. v. A. V. Vi.svanatha Sa.rtri and .Another.

M1h< Chand Mllh•j•• C. J.

1

,

456

SUPREME COURT REPORTS

[19551

the person

in respect of the

the Indian Income- proceedings as it thinks fit under the Excess Profits Tax Act, 1940, or tax Act, 1922, any other law, shall be taken against to whose case the report relates 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 law notwithstanding the restric under tions contained in section 34 of the 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.

the appropriate

Indian

(3) ............................. . ( 4) In all assessment or

recorded by

reassessment proceedings taken in pursuance of a direction under sub-section (2), the findings the Commission on the ease or on 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.

the points referred to it shall, subject to

(5) In respect of any order made in the course of proceedings issued taken in pursuance of a direction 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 copy of such order, by application in the prescribed form accompanied by a fee of Rs. 100 require Income-tax to refer to the High Court any question of law arising -Out of such order, and 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

the appropriate Commissioner of

less than three Judges of the High Court. (6) ............................. .

thereupon

S.C.R.

SUPREME COURT REPORTS

457

(7). Notwithstanding anything to the contrary con tained 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 taken in evidence in any proceedings directed to be under su -section 2)."

b

(

-

the

time when

impugned Act

the there could possibly be taken no exception

It was not and .could not be denied that the powers vested in the Commission and the procedure prescribed is more comprehensive and the by than those contained in the Indian Income-tax drastic impugned statute was Act. · At passed to its contents on the ground of constitutionality of its 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 admittedly was impugned statute 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 touchstone. of the new Constitution and tested on the the all Constitmion have to stand test for their validity on the provisions of Part III of the Constitution.

the coming into force of

laws made before

the

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 laws and of the..., equality of equal protection of the 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 provi sions 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 section to discriminate between one person and another in it was authorized to pick and

the same class and

the provisions of

1954

suraj Mall Mohta

and Co. A. v. i;~vanatha Sastri and Another.

Mehr Chand Mahaja.1 C. J.

'

1 954

Suraj Mall Molda and Co. v. A. V. Visuanatha Sastri and Another.

MthrChand Mahajan C. J.

'

458

SUPREME COURT REPORTS

[1955]

I

.

if

choose the cases of persons who fell within the group of It those who had substantial1y evaded taxation. it chose, send the case of one person to the could, Commission and show to another person though both by not sending his case to the Commission of these persons be within the group of those who have evaded the payment of tax to a substantial extent.

favouritism

regarding the

that assuming

if his contention

As regards sub-section

( 4) of section 5 the learned this section had no independent counsel contended that existence and wa< bound to fall with sub-section (1) of section S, invalidity of that section prevailed. In the alternative, he contend that sub-se,ction ( 1) was valid even ed then sub-section ( 4) had to be declared void because it to the Commission to pick and gave arbitrary power the clause was highly choose and discriminatory in character 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.

secondly because

inasmuch as

The

controls

resulting

it was said

in black-marketing

learned Solicitor-General combated

all these the Act was based on a arguments and contended that that it only dealt with broad and rational classification, 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 activities war and huge profits. In other words, that that group of persons who the Act only dealt with the class of war-profiteers. This was a came within class by itself and needed special there fore the law did not offend against the equal protection It was suggest of the laws clause of the Constitution. ( 4) of ed persons coming under sub-section section S also belonged to the same class and therefore that section also could not be on declared void. there was no prescribed substantial under section 34 of the Indian Income-tax Act and the impugned Act and that the procedure prescribed by the Act was a good substitute for that prescribed by the Indian Income-tax Act.

further said the in

that procedure

It was difference

the same grounds

treatment and

in any case

that

1954

Suraj Mall Mohta anc!Co. v. A. V. Visvanatha Sastri and Another.

Mehr Chant! Mahajan C. J.

S.C.R.

SUPREME COURT REPORTS

459

that section is

the validity of

section and was not

In our judgment, it

is not necessary in this case to the contentions raised by Mr. P. R. Das deal with all It will and combated by the learned Solicitor-General. 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 bec:mse the case of the petitioner was referred to the Commission under the provisions of this referred to the Commission by the Central Government under the provisions of section 5(1) and that being so, an enquiry into really outside the scope of the present case. On the assumption there the Act is based on a valid fore that section 5 ( 1) of classification and deals with a group of persons who the class of war-profiteers which required came within special treatment and that the classification is rational and that reasonable grounds existed for making distinc that class and those who fell within tion between 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. that The first question

is whether sub-section ( 4) of section 5 deals with the same to have been grouped class of persons as are said together in sub-section (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 on the Commission the power merely to add to· included in section 5(1) by the the number of persons Central Government or does larger power the phraseology employed the Commission. On on in the sub-section the sub-section ( 1) of section 5 limitations contained in as learned Solicitor-General. the for by Sub-section (4) which has been set out above in clear and the that some person Commission "has other than the person whose case is being investigated has evaded payment of taxation on income, ...... it may 11-87 S. C. India/59.

requires consideration

reason to believe

terms provided

unambiguous

that where

is difficult

contended

it confer

to read

therein

it

-

•

1954

Suraj Mall Mohta and Co. v. A. V. Visvanatha Saslri and Another.

Mehr Chand Mahajan C. J.

460

SUPREME COURT REPORTS

[1955)

to a

is not

the person whose case

the Central Government."

repeat the phraseology used in

make a report to It does section 5 ( 1) that not some person other than is being investigated "have to a substantial extent evaded pay ment of taxation on income." On no principle of con struction of statutes can the words "substantial extent" be read in sub-clause (a) of section 5(4). On a plain reading of the section it is clear that the sub section to persons who made limited only extraordinary profits and to a substantial extent evaded to all per payment of taxation on income, but applies sons who may have evaded payment of taxation on irrespective of whether the evaded profits are income, In other respects also the substantial or insubstantial. phraseology of the section is different from that em ployed ( 1) the Centr:al Govern of section 5 provided that a per ment "has prima facie reasons for believing extent evaded payment of son has to a substantial taxation on (a) of section 5(4) says that to believe that the preson whose case is being some person other investigated taxation on evaded payment of income''. The prima facie belief of the Central Govern ment 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. limited to profits made within any particular period and brings within its range all persons, whether traders, business men, professional people, whoever they may be, who may have at any time evaded payment of taxation on income for whatever cause.

in sub-section ( 1) of section 5. Sub-section that where

income'', while clause that if the Commission "has reason

It is not necessarily

has

That being

it obviously deals with

the true scope or construction of sub section (4), 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 incq_µie can be section. Assessees caught by proceeding under who have failed to disclose fully and truly all material facts necessary for the assessment under section 34 can the be equated with. persons who are discovered

that

in

1954

Suraj Mall M ohta and Co. v. A. V. Visvanatha Sastri and Another.

Mehr Chand Mahajan C. J.

-

S.C.R.

SUPREME COURT REPORTS

461

' ~ possible

~ course of the

to

the

report

to hold

~settled that

income-tax on

the Commission,

'Indian Income-tax Act.

to have evaded payment of

Indian Income-tax Act.- It

·. ment of income-tax and do not

in its application to everyone

investigation conducted under section their 5(1) incoµies. The result is that some of these persons can be dealt with under the provisions of Act XXX of they 1947, at ·the choice of though the provisions of could also be proceeded with under section 34 of is not that all such persons who evade pay- truly disclose all facts necessary for their assess particulars or material is made under ment and against whom a 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 It is well section 34 of the legal pro.ceedings the same rules of evidence article 14 assures and modes of procedure ; in other words, the same rule must exist for all in similar circumstances. It is also that this principle does not mean that every well settled law must have universal application for all persons in who are not by nature, attainment or circumstance, the same position. The State can by classification for legislation and in relation to a law enacted purposes of subject, but the classification permis on a particular sible must be based on some real and substantial distinc tion bearing a just and the to be attained and cannot be made objects sought arbitrarily and without any substantial basis. Classifi in classes which have a cation means in common proper- systematic relation, usually found is nothing uncommon in characteristics between either persons who are discovered as evaders of income-tax during an investigation conducted under section 5(1) Income-tax and to have evaded payment of income-tax. Both Officer these kinds of persons have common properties and require have common characteristics and j. equal treatment. We that both section 34 thus hold $. of the Indian Income-tax Act and sub-section ( 4) of

.. ties and characteristics. There in properties

.-. determine who should be regarded

those who are discovered by

segregation

as a class

reasonable

therefore

relation

the

or

to

•

1954

Suraj Mall Mofda and Co. v. A. V. Visvanatha Sastri and Another.

Mehr Chand Mahajan C. J. ~

462

SUPREME COURT REPORTS

[19551

;

-

-

the

impugned Act <lea! with all persons'~

,section 5 of who have similar characteristics and similar properties, the common they are · being their income an<l persons who have not truly disclosed have evaded payment of taxation on income.

characteristics

that

to

in

the

that

that

fact,

Indian

income

there was

than following

taxation on their

The next question

procedure prescribed by

• the concealed profits of those who have.~

requires determination is that whether the procedure prescribed by Act XXX of 1947 for discovering evaded payment of is sub stantially different and prejudicial the assessees the · procedure prescribed the Indian Income than tax Act by section 34. The learned Solicitor-General the that contended impugned Act was a fair and good substitute for the procedure prescribed by Income-tax Act the and really no substantial difference-' justice two procedures. He urged between the could be fully done to those persons by following the new procedure and as a matter of it would be more truly done by following the procedure under the the procedure under the impugned Act Indian Income-tax Act. This argument, in our opinion, It begs is clear that if persons dealt with by the im_pugned 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 the discriminatory procedure no defence the course of justice. The matter has also to be 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 against him, why one of person the advantage substantially of the procedure prescribed by the Indian Income-tax Act, while another person similarly situated the It be deprived of it. application of article 14 to be considered.

is to the facts of this case has

income-tax are made similarly placed

to be decided in all such cases.

advances judged from

should have

the question

to say that

this aspect

from

that

'

The next question procedure prescribed by the

for consideration is whether the..l.1

impugned Act in regard to

1954

Suraj Mall Mohta and Co. v. A. V. Visvanatha Sastri and Another.

Mehr Chand Mahajan C. J.

•

-

S.C.R.

SUPREME COURT REPORTS

463

is

to

in

the

investigation

inasmuch as

treatment even

into one. That

income-tax. The

the Act, and operates

itself finds and gathers

investigator and the judge

- . with under section 34,

the Commission has after

the ambit of sub-section ( 4) of section 5

substantially different to the prejudice of

+the same Commission who has already arrived at

these persons have evaded is bound

under persons. So far as we can see been given discriminatory whose cases are referred to under section 5(1) of the Commission Act " persons whose cases are referred ~, the Act it is the prim a f acie belief of

persons similarly situate with those who are proceeded than those these assessees have from those the the case of to under section 5(1) of the Government reference to be made to the Commis to in the case of persons coming the reason to believe income-tax and on its refer their cases to to the prim a f acie conclusion that they have evadc;d paymenJ of in this situation are rolled is not so in cases this circum coming under section 5(1). Apart two stance, procedures,

that enables sion and form an opinion ; while within Commission that report the Government

there are substantial differences between the inter alia, in the following matters :- 1. Under the provisions of section 8 of the impugned the findings of fact given by the Commission as to factum and extent of the evasion are final and con- dusive and thus the persons against whom proceedings are taken under section 5( 4) are deprived of the rights Qf 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 proceed to have escaped ed with under section 34 and is held to the Appellate income-tax has a right of appeal can and Assistant Commissioner Income challenge all the findings of fact given by the If he does not get relief from the Appellate tax Officer. Assistant Commissioner, he is entitled to go before the Appellate Tribunal under section 33 and can challenge all the findings of fact given by tbe Income-tax Officer. the other hand, a person dealt with under section 5 ( 4) of the impugned Act has no such right. The learn the constitution ed Solicitor-General contended

Income-tax

""" Act,

), On

from

that

of

'954

Surqj Mall Mohta and Co. v. A. V., Visvanatha Sastri and Another.

Mehr Chand MahaJan C. J.

464

SUPREME COURT REPORTS

[1955]

' the constitution of the Commission by _ ~

the

the

that

tribunal as

two other responsible persons and

it was a good qf the Commission was such rights of appeal, second appeal and substitute for the revision conferred by the Income-tax Act inasmuch as the Commission is comprised of a High Court Judge these sitting and together were as good a totality of Income-tax Officer, Appellate persons comprising Assistant Commissioner and the Appellate TJibunaL In our opinion, itself cannot be held to be a sufficient safeguard and a rights of appeal and second good substitute for appeal and revision given by !he Income-tax Indian 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 second appeal and revision to challenge ques appeal, tions of fact decided by the Judge of thus a material and substantial difference There between two procedures, one prescribed by the impugned Act and the other prescribed by the Indian Income-tax Act.

first

the

the

is

instance. -'"

-

• operation and the assessment has

the fullest

Income-tax Act

to inspect that are

2. When an assessment on escaped or evaded income is made under the provisions of section 34 of the Indian the Income-tax Act, all the provisions for arriving at into assessment provided under section 23(3) come to be made on all relevant materials and on evidence and the assessee the record ordinarily has right and all documents and materials to be used against him. Under the provisions of section 37 of the Indian the proceedings before the Income-tax Officer are judicial proceedings and all the incidents of such to be observed before 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 for, or obtain copies of, any documents, statement or papers or materials furnished the Commission or to, obtained by or produced before this any authorized official

in any proceedings under

judicial proceedings have

to inspect, call

the result

,4

•

1954

1

Suraj Mall Mohta and Co. v. A. V. V isuanatha Sastri and Another.

Mehr Chand Mahajan C. J.

S.C.R..

SUPREME COURT REPORTS

465

law and

investigated

to sub-section

in whose case is or are being

judicial proceeding a person would have

( 4) which says Act." There is a proviso the person whose case that for the purpose of enabling or points 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, state ments, papers and materials brought on the record by the Commission. This little mer.cy shown to the person is whose case is being investigated by the Commission no substitute for the fullest right of inspection which the Code of Civil Procedure. under ordinary and in in a order to meet the case made against him. He is entitled to get copies of that portion of the materials only 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 the record may not be available to been brought on 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 in those books may well happen that which contain the rebuttal evidence, but the assessee is is not not entitled even entitled the possession of the Commission and take copies of those entries which are favourable to him and which would the case made against the assessee completely demolish in by the Commission. The procedure thus prescribed this matter by substantially the procedure pre prejudicial It was not scribed under the disputed by the the in sections procedure prescribed by the impugned Act 6 and 7 was more drastic than the prqcedure prescribed in sections 37 and 38 of the Indian Income-tax Act. Again, so far as the procedure for reference under sub is also to a section ( 4) of section 5 the assessee. There is no certain extent prejudicial is in this matter in the first stages doubt some similarity to be in the procedure followed for income both under section 34 of the catching evaded Indian Income-tax Act and under the provisions of

Indian Income-tax Act. learned Solicitor-General

to see his own books which are in

the to the assessee

impugned Act than

is concerned, to

their copies. The assessee

there are entries

to have

there

that

that

it

is

•

-

....

"

1954

SuraJ Mall Mohta and c~. v. A. V. Vi.n1anatha Sastri and Anottf.r.

Mehr Chand Mahajan C. ].

466

SUPREME COURT REPORTS

[19551

is

sub-section

that makes all

that though under

(4) of section 5 tentatively arrived at

sub-section ( 4) of section 5 of the impugned Act ; but the overall picture the Indian Income-tax Act the same officer who first arrives at a the case, , his tentative conclusion hears and decides decision is not final but is subject to appeal, while under the the provisions of in decision of the Commission the absence of the assessee. becomes final when taken in his presence, and the difference two procedures. If there was a provision the between the for Investigation the conclusions of reviewing investigators and .Commission when acting both as judges, substantial two procedures as would bring discrimination 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 income or section 34 of evaded income is limited to a maximum period of eight the provisions of sub-section years, while under ( 4) of section 5 it is not limited to any period and this cer tainly 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.

there might not have been such

into escaped

investigation

in the

in so far as it affects

For the reasons given above we are of the opmton that sub-section ( 4) of section 5 and the procedure pre scribed by the · impugned Act 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 from expressing any opinion, as above pointed refrain out, on the validity- of section 5 (1) of the Act or on the impugned Act the question whether section 6(5) of offends against the provisions of article 20 sub-clause (3) of the Constitution. We accordingly direct that an appropriate writ be Investigation Commission prohibiting it from taking any proceedings under impugned Act against the the petitioner. The petitioner will have his costs of these proceedings.

the provisions of

issued against

the

Writ issued.

1

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•