No 85 of 1959
Writ Petition under article 32 of the Constitution of India for the enforcement of fundamental rights
A V Viswanatha Sastri R section Pathak section N Andley Rameshwar Nath and P L Vohra for the petitioner
K N Rajagopala Sastri and D Gupta for respondents Nos 1 and 2 1961
April 14
The Judgment of the Court was delivered by section K DASJ
One Ranjit Singh is the petitioner before us
The respondents are the Commissioner of Income tax Lucknow the Income tax Officer Lucknow and the Collectors of three districts in Uttar Pradesh namely Dehra Dun kanpur and Lucknow being officers under whose orders certain properties of the petitioner and his family have been attached in pursuance of a notice of demand issued under section 29 of the Indian Income tax Act 1922 in circumstances which we shall presently state
The facts are shortly these
In 1948 the Central Government referred a number of cases in which the petitioner was concerned to the Income tax Investigation Commission set up under the relevant provisions 968 of the Taxation on Income Investigation Commission Act 1947 Act XXX of 1947 hereinafter referred to as the Act
On May 30 1948 the Secretary of the Commission issued a notice to the petitioner to furnish a list of businesses or concerns in which the petitioner was interested and to produce the account books registers etc
relating thereto
The petitioner complied with the notice
Then an Autho rised Official appointed by the Commission commenced an investigation into the cases in February 1949 and in due course submitted a report to the Commission
The Commission heard the petitioner and on April 16 1949 submitted a report under section 8 A1 of the Act
The findings of the Commission appear from the following extract from their report The total tax payable on the undisclosed in come upto March 31 1947 would accordingly be Rs 661917     
The amount of Rs661917 may be recovered from Mr Ranjit Singh and from the family assets in the hands of Mr Ranjit Singh
In view of the admission recorded as number iii in para 6 supra the tax will also be recoverable from the properties acquired between 1939 and 1947 in the names of Mrs Ranjit Singh and Mr Ranjit Singh s sons Baljit Singh and Satendrajit Singh
In the circumstances we recommend that no penalty be levied on the assessee in respect of non disclosures and false or incorrect statements so far made either to the income tax authorities or in the course of the present proceedings including those before the Authorised Official
Mr Ranjit Singh and Mr Vaidyanatha Ayyar representative of Mr Ranjit Singh have asked that they be allowed sufficiently long time to pay up the tax
It has been represented that out of taxes already assessed by the Income tax Department about Rs 386000 is still due and the addition of the amount leviable under this report will bring the assessee s total liability to about 10 12 lakhs
Mr Ranjit Singh has asked that he may be permitted to pay up this sum in not 969 more than five years in instalments of not less than a lakh of rupees at a time
While we do not wish to go into the details of the offer we recommend this request for time for favourable consideration by Government Then on November 7 1949 the petitioner his wife and two sons submitted a petition to the Commission in which they accepted the findings of the Commission as correct and offered to pay the tax in instalments in accordance with certain terms of settlement
Some of these terms are 3
We offer to pay the aforesaid amount of Rs 661917 as per the following instalments 1 on or before the 31st March 1951 Rs 100000
2 on or before the 31st March 1952 Rs 231000
3 on or before the 30th June 1952 Rs 330917
We however pray that so far as the last instalment is concerned in case we are unable to pay the same by the date mentioned above and are able to satisfy the Central Board of Revenue that we have failed to raise the money for reasons beyond our control and for no fault of our own a suitable extension of time may be granted
5In respect of the other instalments we agree that in case of default in the payment of any one of them the whole amount of tax outstanding at the time shall become immediately payable
 The report of the Commission and the terms suggested by the petitioner for a settlement were accepted by the Central Government and an order was passed under section 8 A2 of the Act on November 21 1949 which stated in its operative part that a demand notice be served immediately by the Income tax Officer concerned under section 29 of the Indian Income tax Act 1922 on the petitioner in accordance with the terms and conditions of settlement and that all such other proceedings under the Indian Income tax Act or under any other law as may be necessary be taken with a view to enforce the payment of the demand and terms and conditions of the settlement
122 970 The respondents allege that a demand notice was accordingly issued to the petitioner on December 2 1949
The petitioner alleges however that he received the notice in or about April 1950 after the Constitution of India had come into force
Thereafter in pursuance of the demand notice certain payments were made by the petitioner
The petitioner was however unable to make full payment within the stipulated periods mentioned in the demand notice
The result was that according to the terms of settlement the whole amount outstanding at the time became immediately payable by the petitioner
Then certain properties of the petitioner and his family were attached by the Collector of the district concerned in pursuance of the orders received from time to time from the Income tax Officer
On June 8 1959 the petitioner filed the present writ petition challenging the legality of the demand notice dated December 2 1949 and the subsequent proceedings taken in pursuance of that notice
The case of the petitioner is that after the coming into force of the Constitution of India on January 26 1950 the demand notice could not be given effect to and the proceedings taken in pursuance of that notice are unconstitutional inasmuch as they violate his fundamental rights guaranteed by the Constitution
In the petition a reference has been made to Articles 1431 and 191g of the Constitution but the argument before us has proceeded on the contention urged on behalf of the petitioner that there has been a violation of the fundamental right of equal protection of the laws guaranteed to him under article 14 of the Constitution inasmuch as he has been dealt with differently from other debtors who owe money to the State under a contractual liability
The substantial prayer of the petitioner is for the issuance of a writ of mandamus directing the respondents not to give effect to the notice of demand dated December 2 1949 nor to take any proceedings for enforcing the terms of settlement and for recovery of the sums specified therein
The petition has been contested by the respondents and the principal point taken on their behalf is that 971 the legality of the demand notice dated December 2 1949 cannot be challenged by the petitioner on the strength of the provisions of the Constitution because the Constitution is prospective and not retrospective secondly it is contended on behalf of the respondents that the subsequent proceedings taken in pursuance of the demand notice aforesaid do not in any way violate the right of equal protection of the laws guaranteed under article 14 of the Constitution
It is convenient at this stage to refer to some of the earlier decisions of this Court on the question of con
stitutionality of some of the provisions of the Act
On May 28 1954 this Court delivered judgment in Suraj Mall Mohta and Co vs A V Visvanatha Sastri and Another 1
It is not necessary to state the facts of that decision
It is enough to say that it was held therein that sub section
4 of section 5 of the Act war bad as it offended the provisions of article 14 of the Constitution
Sub section 4 of section 5 of the Act having been declared void Parliament passed the Indian Income tax Amendment Act 33 of 1954 amending section 34 of the Indian Income tax Act 1922
As a result of this amendment the validity of sub section
1 of section 5 of the Act came in for challenge on the ground that the Income tax Officer could pick out some out of the class of substantial tax evaders and refer their cases under sub section
1 of section 5 while dealing with other such persons under amended section 34 of the Indian Income tax Act
In Shree Meenakshi Mills Ltd Madurai V A V Viswanatha Sastri and Another2 sub section
1  of section 5 of the Act was held to be bad on that ground
It should be noted that in none of the petitions disposed of by that judgment had any assessment been made under the Act and this Court only prohibited further proceedings before the Commission under the Act Finally on December 20 1955 came the decision of this Court in M CT
Muthiah  two Others vs The Commissioner of Income tax Madras  Another 3
In that case on a reference under B 51 of the Act the Commission submitted its report to Government under 1  2 3 972 s81 of the Act on August 26 1952 that is after the coming into force of the Constitution and the Central Government made its order under section 82 of the Act on September 16 1952
In these circumstances it was held The result therefore is that barring the cases of persons which were already concluded by reports made by the Commission and the directions given by the Central Government under section 82 of the Act XXX of 1947 culminating in the assessment or reassessment of the escaped income those cases which were pending on the 26th January 1950 for investigation before the Commission as also the assessment or reassessment proceedings which were pending on the 26th January 1950 before the Income tax Officers concerned in pursuance of the directions given by the Central Government under section 82 of the Act would be hit by Article 14 of the Constitution and would be invalidated
 Lastly came the decision in Basheshar Nath vs The Commissioner of Income tax Delhi  Rajasthan and Another 1
That was a case of a settlement under section 8 A of the Act as in the present case but the fact which distinguishes that case from the present is that the settlement there was made after the commencement of the Constitution
It was held therein that the settlement was the result of a procedure which became discriminatory after the commencement of the Constitution and was therefore bad and as the discriminatory process of investigation continued even after the commencement of the Constitution the principle laid down in Syed Qasim Razvi vs The State of Hyderabad and Others 2  did not apply
The point which requires emphasis with regard to these earlier decisions is this they all dealt with the operation of a discriminatory procedure under the different provisions of the Act after the commencement of the Constitution
The position in the case under our present consideration is that the settlement the order under section 8 A2 of the Act and even the notice of damaged in pursuance of that order all these took 1 1959 Supp 1 SC R 528
2 973 place before the coming into force of the Constitution and this  vital distinction must be borne in mind in considering the contentions urged by learned Counsel for the petitioner
The main contention is that the proceedings taken against the petitioner in pursuance of the order under section 8 A2 are violative of the guarantee of equal protection of the laws under article 14 of the Constitution
There are however two subsidiary contentions which do not directly raise any question of the violation of a fundamental right and these may be disposed of before we deal with the main contention
In his petition the petitioner has stated that he received the demand notice dated December 2 1949 in or about April 1950
In the counter affidavit of the respondents it has been stated that the assessee was informed of the demand early in December 1949
A copy of the order of the Central Government under section 8 A2 of the Act dated November 21 1949 was sent to the petitioner there is an endorsement in the office copy of the demand notice dated December 2 1949 that it was sent by registered post acknowledgment due
Thereafter the petitioner paid part of the tax on different dates without raising any objection that he had not received the demand notice before April 1950
It was for the first time in April 1959 some ten years after that the petitioner asked for a copy of the order under section 8 A2 and information as to the date when he had received the regis tered notice of demanad
He also asked for an inspection of the file
This was however refused
Then the petitioner made the statement that he had received the demand notice in or about April 1950
He said that the statement was based on his knowledge he did not disclose the source of his knowledge nor did he say how he remembered ten years after without reference to any documents that he had received the demand notice in or about April 1950
We are unable to accept the statement as correct
On the materials in the record it is clear that the proceedings against the petitioner culminating in the service of the notice of demand against him were all completed 974 before the coming into force of the Constitution and the petitioner cannot challenge those proceedings under article 14 of the Constitution for it is well settled that the Constitution is prospective and not retrospective
On the construction of section 8 A of the Act it has been argued that after the order made by the Central Government under sub section
2 thereof a fresh assessment was necessary and as no such assessment was made all subsequent proceedings for recovery of the tax are illegal
This is a point which has not been specifically taken in the petition
That apart we do not think that there is any substance in this contention
We may here read section 8 A so far as it is relevant section 8 A 1 Where any person concerned in any case referred to or pending before the Commission for investigation applies to the Commission at any time during such investigation to have the case or any part thereof settled in so far as it relates to him the Commission shall if it is of opinion that the terms of the settlement contained in the application may be approved refer the matter to the Central Government and if the Central Government accepts the terms of such settlement the Commission shall have the terms thereof recorded and thereupon the investigation in so far as it relates to matters covered by such settlement shall be deemed to be closed
2 For the purpose of enforcing the terms of any settlement arrived at in pursuance of sub section 1 the Central Government may direct that such proceedings as may be appropriate under the Indian Income tax Act 1922 XI of 1922 the Excess Profits Tax Act 1940 XV of 1940 or any other law may be taken against the person to whom the settlement relates and in particular the provisions of the second proviso to clause a of sub section 5 of section 23 section 24B the proviso to sub section 2 of section 25A the proviso to sub section 2 of section 2 6 and sections 44 and 46 of the Indian Income tax Act 1922 shall be applicable to 975 the recovery of any sum specified in such settlement by the Income tax Officer having jurisdiction to assess the person by whom such sum is payable as if it were income tax or an arrears of income tax within the meaning of those provisions
 The scheme of section 8 A is different from that of section 8
The latter section contemplates an assessment or reassessment in accordance with the direction of the Central Government see sub section
4 of s 8
That is not the position under section 8 A sub section
2 whereof provides for the enforcement of the terms of any settlement arrived at in pursuance of sub section
There is Do doubt a reference to certain special provisions of the Indian Income tax Act 1922 regarding assessment of partners in a registered firm tax payable by the representative of a deceased person etc but the reference to those provisions does not necessarily mean that a fresh assessment must be made
They merely show that these special provisions will be applicable in appropriate cases
Sub section
2 ends by saying that sections 44 and 46 of the Indian Income tax Act 1922 shall be applicable to the recovery of any sum specified in such settlement by the Income tax Officer having jurisdiction to assess the person by whom such sum is payable as if it were income tax or an arrears of income tax within the meaning of these provisions
 This clearly shows that the true scope and effect of the sub section is to enforce the terms of any settlement arrived at in pursuance of sub section
1 and to recover any sum specified in such settlement as if it were income tax or arrear of income tax in accordance with the provisions of sections 44 and 46 of the Indian Income tax Act 1922
We are unable therefore to accept the construction which learned Counsel for the petitioner seeks to put on the sub section
This brings us to the main contention that the petitioner has been subjected to a discriminatory procedure after the coming into force of the Constitution by reason of section 8 A2 of the Act
Learned Counsel for the petitioner has put his argument in the following way
He has submitted that what the petitioner agreed to pay to Government was really a 976 debt arising out of a contract viz the settlement between him and Government and the petitioner is one amongst the larger class of persons who are debtors of Government against all other debtors Government have the ordinary remedy by way of suit but against the petitioner a special remedy is provided which is more drastic and envisages the imposition of a penalty under section 46 of the Indian Income tax Act 1922 if the petitioner is in default in making a payment of the amount due
This it is argued is a discriminatory procedure which has been continued even after the coming into force of the Constitution
We are unable to accept this argument as correct
First of all the petitioner does not really belong to the larger class of persons whom learned Counsel has characterised as debtors of Government
The petitioner belongs to a special class who had evaded payment of Income tax and had entered into a settlement to pay the amount due as income tax or arrear of income tax
For this class of persons the procedure laid down in section 8 A2 is one and the same and no discrimination is made in favour of or against any member of the same class
The classification is a reasonable classification having a just relation to the object of the pro vision
For the recovery of the amount due as income tax or arrear of income tax all these persons are treated on the same footing
Neither is there any discrimination between them and other persons similarly placed in the matter of recovery of income taxor arrears of income tax
Secondly it is open to the legislature to make a law as to how particular Government dues should be realised and if the law applies equally to all persons similarly situated no objection call be taken to such law on the ground of discrimination
The truth of the matter is that what the petitioner agreed to pay to Government is really income tax which should have been paid in regard to the relevant assessment years but which had escaped assessment and therefore the recovery is to be made according to income tax law
That is all that section 8 A2 says
In the decisions of this Court to which we bad earlier adverted what was held to be bad was 977 the application of a discriminatory procedure after the coming into force of the Constitution
even in Basheshar Nath s case 1 the Commission applied the discriminatory procedure after the coming into force of the Constitution and then submitted its report on May 24 1954 and the Central Government accepted the settlement on July 5 1954
It was held that the settlement itself was vitiated by the discriminatory procedure adopted by the Commission
That is not the position here
In this case everything was con cluded before January 26 1950 when the Constitution came into force including the issuance of a notice of demand
All that remained to be done was the recovery of the amount according to the notice of demand
Therefore the crucial question is is the recovery procedure discriminatory in any way having regard to the undoubted validity of the proceedings which had been taken against the petitioner before January 26 1950 We are unable to answer this question in favour of the petitioner for the reasons which we have already stated
Learned Counsel for the petitioner relied on the decision in M L M Muthiah Chettiar and Others vs Commissioner of Income tax Madras 2
The facts of that case were entirely different and no question arose there of considering the provisions of section 8 A 2 of the Act
For these reasons we hold that there is no merit in the petition which is accordingly dismissed with costs
Petition dismissed
1 1959 SUPP
1 SCR 528


Summary:
In 1948 the Central Government referred a number of cases in which the petitioner was concerned to the Income tax Inves tigation Commission set up under the relevant provisions of the Taxation on Income Investigation Commission Act 1947
After the Commission had submitted the report under section 8 A1 of the Act in which the total tax payable on the undisclosed income upto March 31 1947 was estimated the petitioner applied for a settlement of his case by offering to pay the amount of tax in instalments and by agreeing to pay the whole amount immediately in case of default in payment of any of the instalments in time
The Central Government accepted the terms suggested by the petitioner and passed an order on November 21 1949 under section 8 A2 of the Act directing the service of a demand notice on the petitioner and recovery of the tax in accordance with the terms and conditions of the settlement
On December 2 1949 a notice of demand was issued to the petitioner who in pursuance thereof made certain payments
But as the petitioner was unable to make full payment within the stipulated periods the whole amount outstanding became immediately payable and certain properties belonging to him and his family were attached by the Collector of the district Concerned for the recovery of the amount
On June 8 1959 the petitioner filed a writ petition tinder article 32 of the Constitution of India challenging the legality of the demand notice dated December 2 1049 and the subsequent proceedings taken in pursuance of that notice on the ground that after the coming into force of the Constitution of India on January 26 1950 they were violative of the fundamental right of equal protection of the laws guaranteed under article 14 inasmuch as what he had agreed to pay the Government as a result of the settlement was really a debt and he had been dealt with differently from other debtors who owed money to the State under a contractual liability
Held 1 that the proceedings against the petitioner cul minating in the service of the notice of demand against him were all completed before the coming into force of the Constitution and the petitioner cannot challenge those proceedings under 967 article 14 of the Constitution because it is well settled that the Constitution is prospective and not retrospective 2 that the true scope and effect of sub section
2 of section 8 A is to enforce the terms of any settlement arrived at in pursuance of sub section
1 which was really income tax which had escaped assessment 3 that the petitioner belonged not to the larger class of debtors of Government but to a special class which had evaded payment of income tax for which the procedure laid down in section 8 A2 was one and the same and that the classification being reasonable having a just relation to the object of the provision the recovery procedure cannot be challenged as discriminatory under article 14
Suraj Mail Mohta and Co vs A V Visvanatha Sastri and Another 1955 1 SCR448 M CT
Muthiah  two Others vs The Commissioner of Income tax Madras  Another  and Basheshar Nath vs The Commissioner of Income tax Delhi  Rajasthan and Another 1959 Supp 1 SCR 528 distinguished