Appeals Nos 37 40 of 1963
Appeals from the judgment and decree dated August 13 11 1959 of the Allahabad High Court in Civil Misc
Writ Petitions Nos 870 to 873 and 349 of 1956 respectively
WITH Petitions Nos 335 to 345 of 1960
Petition under article 32 of the Constitution of India for the enforcement of Fundamental Rights
G section Pathak section N Andley Rameshwar Nath and P L Vohra for the appellants in CAs
37 40 of 1963
M C Setalvad Rameshwar NathS N Andley and P L Vehra for the appellant in CA No 58963
C K Daphtary Attorney General K N Rajagopal Sastri and R N Sachthey for the respondents in all the appeals and petitions
828 February 19 1964
The Judgment of the Court was delivered by GAJENDRAGADKAR CJ
These civil appeals and writ petitions have been placed before us for hearing in a group
because all of them raise a common question of law about the validity of section 341A of the Income tax Act No XI of 1922 hereinafter called the Act 
Ms K section Rashid  Son and its partner Rashid Ahmad are the appellants in Civil Appeals Nos 37 to 401963 and petitioners in WPs
335 3451960
The appeals arise out of the four writ petitions Nos 870 873 of 1956 filed by the firm and its partner in the High Court of Allahabad challenging the validity of the notices served upon them under section 341A of the Act in respect of their income for the years 1941 42 to 1946 47
These writ petitions have been dismissed by the said High Court and it is with the certificate issued by it that the firm and its partner have come to this Court in appeal
The writ petitions Nos
335 3451960 have been filed by the same parties in this Court under article 32 of the Constitution in respect of the notices served on them on the 19th March
1956 and the order of excess profit tax levied on them
In these petitions the same point is urged by the parties and that is that the notices are invalid because section 341A is itself ultra vires
The respondents to the appeals are  the Commissioner of Income tax UP Lucknow and the Income tax Officer Central Circle IV Delhi
The respondents to the writ petitions are  the Income tax Officer Central Circle IV New Delhi the Income tax Officer A  Ward Meerut the Commissioner of Income tax UP Lucknow and the Central Board of Revenue New Delhi
Civil Appeal No 589 of 1963 has been brought to this Court in similar circumstances by the appellant Ms Bhawani Prasad Girdharlal
The appellant had challenged the validity of the notices issued to it on the 16th August 1955 under section 3 4 1A of the Act
The writ petition filed by the appellant has been dismissed by the Allahabad High Court and it is with the certificate issued by the said High Court that the present appeal has been brought to 829 this Court
That is how the only question which arises for our decision in this group of matters relates to the validity of section 341A of the Act
The argument urged in support of the challenge to the validity of the impugned section is that it suffers from the vice of contravening article 14 of the Constitution
It is urged that whereas under section 341 which deals with similar cases of assessees the remedy by way of appeals and revisions under the relevant provisions of the Act is available to the assessees that remedy is denied to the assessees against whom proceedings are taken under the impugned section
Section 341 thus gives a preferential treatment to the assessees who are similarly placed with the assessees dealt with under section 341A and that amounts to unconstitutional discrimination
It is also urged that in regard to cases falling under section 341 a as it stood at the relevant time a period of limitation of 8 years had been prescribed beyond which the assessing authority could not act and this protection of the prescribed period of limitation is not available to the assessees against whom action is taken under the impugned section
It is on these two grounds that the validity of section 341A is challenged before us
Section 34 deals with income which has escaped assessment
Section 341 a deals with cases where income has inter alia escaped assessment owing to the omission or failure on the part of the 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 whereas section 341 b refers to cases where income has escaped assessment notwithstanding that there has been no omission of failure as mentioned in clause a on the part of the assessee
In respect of the first category of cases section 341 had provided at the relevant time that the Income tax Officer may in cases falling under cl
a at any time within eight years and in cases falling under clause b at any time within four years of the end of that year serve on the assessee a notice containing all or any of the requirements which may be included in the notice under sub section 2 of section 22 and may proceed to assess or re assess such income profits or gains or recompute the loss or 830 depreciation 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 sub section
Let us now read the relevant portion of section 341A
This provision lays down inter alia that if in any case of an assessee
the Income tax Officer has reason to believe i that income has 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 said income amounts or is likely to amount to Rs 1 lakh 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 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 the income profits or gains of the assessee for all or any of the years referred to in clause i and thereupon the provisions of this Act excepting those contained in clauses i and iii of the proviso to sub section 1 and in sub sections 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 sub section 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
831 It is urged that whereas in cases falling under section 341 the Income tax Officer has to deal with the matter on the footing that the notice issued against the assessee is a notice under section 222 that obligation is not imposed on the Income tax Officer while he deals with cases falling under section 341A because the words as if the notice were a notice issued under that sub section which are found in section 341 are omitted in section 341A
It is not seriously disputed that if the notice issued under section 341A is not deemed to be a notice under section 22 2 the remedies by way of appeals and revisions which are prescribed by sections 30 31 32 33 33A and 33B of the Act would not be available to the assessee and so the main basis for the attack against the validity of section 341A rests on the hypothesis that the omission of the relevant words in section 341A in substance deprives the assessee of the said remedies prescribed by the relevant provisions of the Act
If the assumption on which this challenge proceeds is well founded
section 341A may suffer from the infirmity that it contravenes article 14
Though as we will later point out there is a rational classification between the assessees falling under section 341 and those falling under section 341A that rational classification would not justify the denial of the right of appeal to the persons included in section 341A
The question thus presented is one of construction
Before dealing with the construction of section 341A it would be necessary to refer very briefly to the background of the enactment of the said section
This section was introduced by an amendment in the Act on the 17th July 1954 and that was because section 5 4 of the Taxation on Income Investigation Commission Act No 30 of 1947 was struck down by this Court as unconstitutional on May 28 1954 in Suraj Mall Mohta and Another vs A V Viswanatha Sastri and Another1
In that case while examining the validity of section 54 of the Investigation Commission Act this Court held that the persons brought within the mischief of the said section belong to the same class of persons who fall within the ambit of section 34 of the Act and are dealt with by section 341 and in view of the 1  832 fact that the procedure prescribed by section 54 of the Investigation Commission Act was very much less favourable to the assessees than the one available to them if action was taken against them under section 341 the conclusion reached was that the impugned section 54 was unconstitutional
It is unnecessary to refer to the several grounds mentioned by Mahajan CJ who spoke for the Court in striking down the impugned section
After this judgment was pronounced the legislature intervened and enacted section 341A
That however was not the end of the matter
When section 341 was introduced in the Act there remained two statutory provisions dealing with substantially the same subject matter section 51 of the Investigation Commission Act and section 341 of the Act
In Shree Meenakshi Mills Ltd Madurai vs Sri A V Viswanatha Sastri and Another1 a point was raised before this Court as to whether it was open to the Income tax Department to invoke section 51 of the Investigation Commission Act after section 341A of the Act was enacted and this Court held that it was not because on comparing the two relevant provisions section 51 according to the decision of this Court contravened article 14 of the Constitution
That is how section 51 became a dead letter and the Investigation Commission in consequence ceased to function
The cases which had been referred to that Commission and which had not been completed had therefore to be taken up under section 341A of the Act
Thus it would be noticed that the present controversy has had a somewhat chequered career
The first challenge was to section 54 of the Investigation Commission Act when the challenge succeeded and the said section was struck down in the case of Suraj Mall Mohta2 the legislature intervened and section 341A was added in the Act
Nevertheless the cases pending before the Investigation Commission were sought to be continued before the said Commission under section 51 and this section was struck down in the case of Shree Meenakshi Mills Ltd1 and now that proceedings against the same class of assessees are sought to be continued under section 341A it is urged that section 341A of the Act itself is invalid
It is in 1 2  833 the light of this background that the controversy between the parties in the present proceedings has to be judged
Reverting then to the question of construction the narrow point which needs to be examined is what is the effect of the omission to include in section 341A the clause  as if the notice were a notice issued under that sub section which is to be found in section 341 In dealing with this question we think it would not be unreasonable to bear in mind that when the legislature enacted section 341A it must have desired to remove the infirmities which had rendered section 54 of the Investigation Commission Act invalid
In other words the legislature must have presumably wanted to afford to the assessees in respect of whom section 341A was intended to be invoked the same remedies that were available to the assessee covered by section 341
Though the importance or significance of this consideration cannot be unduly emphasised it cannot be said that this consideration is altogether irrelevant
We have already read the relevant portion of section 341A and we have seen that it requires that a notice containing all or any of he requirements which may be included in the notice under section 22 sub section 2 has to be issued In other words the notice which is required to be issued is in terms in a sense referable to section 222 because the legislature has provided that it must contain all or any of the requirements which would be included in such a notice
Then section 341A provides that after issuing the notice on the assessee in the manner prescribed by it the Income tax Officer may proceed to assess or reassess the income profits or gains of the assessee for the relevant years
In the context it would we think be reasonable to hold that the assessment or reassessment which has to follow the issue of the notice must be assessment or reassessment in accordance with the relevant provisions of the Act and this is made very clear by the clause that follows because the said clause begins with the word thereupon which indicates that when the process of assessment or reassessment commences the clause beginning with the word thereupon comes into operation and this clause requires that the Provisions of the 134 159 SC 53 834 Act shall so far as may be apply accordingly
The word accordingly like the word thereupon seems to emphasise the applicability of the relevant provisions of the Act to the proceedings taken under section 341A otherwise there is no particular reason which would have justified the further provision in the section excepting certain provisions of the Act which are held to be inapplicable to the proceedings under section 341A
It is true that section 341 uses the clause as if the notice
were a notice issued under that sub section and section 341A does not but the two provisions were not inserted in the Act at the same time section 341 in the present form was enacted in 1948 whereas section 341A was enacted in 1954
It is quite likely that the draftsman who drafted section 341A took the view that the last clause in question which occurred in section 341 was really superfluous and that may account for its omission in section 341A
In our opinion therefore construing the relevant words in section 341A it would be difficult to accede to the argument that the said omission was deliberate and significant and its consequence is that the provisions of section 22 and all other provisions consequent upon the application of section 22 become irrelevant in dealing with cases under section 341A
If section 22 is held to be inapplicable to proceedings under section 341A the consequence would be entirely irrational and fantastic
The powers conferred on the Income tax Officer under section 23 2 to take evidence would then not be available to him and indeed all the powers prescribed and the procedure laid down by section 23 would become irrelevant
Likewise the provisions in regard to appeals and revisions contained in sections 30 31 33 33A and 33B would also be inapplicable
As we have already seen the inapplicability of these provisions is the main foundation of the attack against the validity of section 341A
It is however urged that though the specific powers conferred by section 23 may not be available to the Income tax Officer he may nevertheless exercise similar powers because the authority to assess must itself include such powers as incidental to assessment
The best judgment assessment which is authorised by section 23 4 may it is suggested be made even in cases falling under 835 section 341A under the inherent authority of the Income tax Officer
In our opinion this approach is wholly miscon ceived
We are satisfied that it could not have been the intention of the legislature when it enacted section 341A that the procedure prescribed by the
relevant provisions of the Act beginning with section 22 should not be applicable to pro ceedings taken under section 341A and that the procedure to be followed in the said proceedings and the powers to be exercised by the Income tax Officers dealing with them should be what is vaguely described as the inherent or incidental powers  of such officers
Therefore we have no hesitation in holding that the challenge made to the validity of section 341A on the ground that the remedy by way of appeals or revisions which is available to the assessees against whom proceedings are taken under section 341 is not available to the assessees who are covered by section 341A cannot be sustained
The other contention raised against the validity of s341A is based on the fact that at the relevant time g 341a dealt with cases similar to those falling under s341A and yet whereas in the former category of cases a period of limitation was prescribed as eight years there is no such limitation in regard to the latter and that it is urged means unconstitutional discrimination
We are not impressed by this argument
It is true that in a broad sense both section 341 a and section 341A deal with cases of income which has escaped assessment
and in that sense the assessees against whom steps are taken in respect of their income which has escaped assessment can be said to form a similar class but the similarity between the two categories disappears when we remember that section 341A is intended to deal with assessees whose income has escaped assessment during a specified period between 1st of September 1939 and the 31st of March 1946
It is well known that that is the period in which as a result of the War huge profits were made in business and industry
The second point which is very important is that in regard to the cases falling under section 341A action can be taken only where the income which has escaped assessment is likely to amount to Rs 1 lakh or more
In other words
836 it is only in regard to cases where the escaped income is of a high magnitude that the restriction of the period of limitation has been removed
It is difficult to accept the argument that the legislature was not justified in treating this smaller class of assessees differently on the ground that the profits made by this class were higher and the income which had escaped assessment was correspondingly of a much larger magnitude
The object of the legislature being to catch income which had escaped assessment it would be legitimate for the legislature to deal with the class of assessees in whose cases the income which had escaped assessment was much larger because that would be a basis for rational classification which has an intelligible connection with the object intended to be achieved by the statute
It was suggested that as a result of the provisions con tained in section 341a and section 341A one year would overlap and that may be true
But the argument of overlapping has no significance because it makes no difference whether action is taken under section 341 or section 341A in respect of that year
Once the notice is served under section 341 or section 341A the rest of the procedure is just the same and all the remedies available to the assessees are also just the same
Therefore we see no substance in the argument that the absence of the restriction as to period of limitation under section 341A introduces any infirmity in the said provision
In the result we must hold that section 341A is valid and has not contravened article 14 of the Constitution
That is the effect of the majority view taken by the Allahabad High Court in Jai Kishan Srivastava vs Income tax Officer Kanpur and Another1
There is one minor additional point which has been argued before us by Mr Setalvad in Civil Appeal No 589 of 1963 and that point is based upon the requirement prescribed by the proviso to section 341A that the Income tax Officer shall not issue a notice 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
The argument is that the require 1 I L R 1959 II All
451 837 ment prescribed by the proviso constitutes a condition precedent for the exercise of the authority conferred on the Income tax Officer by section 341A and since that requirement is not shown to have been satisfied in his case the appellant in CA No 589 of 1963 must succeed even if section 341A is held to be valid
We are not impressed by this argument
What was urged before the High Court by the appellant was not that no reasons had been recorded by the Income tax Officer as required by the proviso the argument was that the appellant had not been given a copy of the said reasons and it appears to have been urged that the appellant was entitled to have such a copy
This latter part of the case has not been pressed before us by Mr Setalvad and rightly
Now when we look at the pleadings of the parties it is clear that it was assumed by the appellant that reasons had been recorded and in fact it was positively affirmed by the respondent that they had been so recorded the controversy being if the reasons are recorded is the assessee entitled to have a copy of those reasons Therefore we do not see how Mr Setalvad can suggest that no reasons had in fact been recorded and so the condition precedent prescribed by the proviso had not been complied with
The result is all the Civil Appeals and Writ Petitions in this group fail and are dismissed
There would be no order as to costs
Appeals and Writ Petitions dismissed


Summary:
The validity of section 341A of the Income tax Act was challenged by the assessees as contravening article 14 of the Constitution
It was contended that the remedy by way of appeals and revisions available in cases under section 341 was denied to the assessees against whom proceedings were taken under section 341A and that while under section 341a as it then stood the assessing authority could not act beyond 8 years this protection was not available to assessees against whom action was taken under section 341A
827 Held Section 341A was valid and did not contravene article 14 of the Constitution
It could not have been the intention of the legislature when it enacted section 341A that the procedure prescribed by the relevant provisions of the Act beginning with section 22 should not be applicable to proceedings taken under section 341A and that the procedure to be followed in the said proceedings and the powers to be exercised by the Income tax Officers dealing with them should be what is vaguely described as the inherent or incidental powers of such officers
The words thereupon and accordingly in section 341A seems to emphasise the applicability of the relevant provisions of the Act to the proceedings taken under section 341A
The object of the legislature being to catch income which  had escaped assessment it would be legitimate for the legislature to deal with the class of assessees in whose cases the income which had escaped assessment was much larger because that would be a basis for rational classification which has an intelligible connection with the object intended to be achieved by the statute
Jai Kishan Srivastava vs Income tax Officer Kanpur ILR 1959 II All 451 approved
Suraj Mull Mohta vs A V Viswanatha Sastri 19551 SCR 448 and Shree Meenakshi Mills Ltd Madurai vs Sri A V Viswanatha Sastri 19551 SCR 787 referred to