Case: S. C. Prashar, Income-Tax Officer,Market Ward, Bombay And Vs. Vasantsen Dwarkadas And Others

escaped income. But those who are guilty of an omission or failure or who give incorrect particulars or conceal the particulars of their income must stand exposed to action for a longer time. The difference between these two cases is understandable. Those who are deliberately in default generally cover up their action and it takes longer to detect them and open proceedings against them. They cannot be allowed to say that theirs is a case on par with a man who acts innocently. The section also draws a distinction between two more classes one above rupees one lakh and the other below it. In the former there is no limit of time ex- cept that the income-tax officer cannot go beyond the year ending on the March 31, 1941, arid that he must take the sanction of the Board of Revenue. In the other cases the Income-tax Officer can take action within eight years and must obtain the sanction of his Commissioner. These two distinctions have never been challenged as discriminatory.What is challenged is the provision that if in the assessment proceedings against A there is a finding or direction against B, proceedings can be started against B at any time while the time limit for action otherwise is either four years or eight years. But it must be remembered that the law is dealing with the subject of tax evasion. No uniform system applicable to all kinds of defaulters can be made. The methods of tax evaders are both ingenious and varied. One such method is to confuse the issue by mixing up incomes, profits and gains of several parties so that the income of A may appear to be the income of B or of A B. There is of course always the chance that it may not be discovered to be the income of either A or B or A B. The cases with which we have dealt are admirable examples of such actions. Whether the firm "Vasantsen Dwarkadas" belonged to its three partners, or to Dwarkadas alone or to the firm "Purshottam Laxmidas"; whether Jagannath Ramkishan was a munim of Jagannath Fakirchand or his partner; whether Lakhmir Singh or Nechal Singh from a Hindu undivided family or were seperate are questions the answers to which may not be known till some Court or Tribunal finds the true facts and there is no reason why a law should not be framed in such a way as to give more time for action. If A keeps his money with B and this fact is discovered in the assessment proceedings against B and a finding to that effect is given, a situation arises in which the law thinks that A should be brought to book even though, if action against him were commenced in the ordinary way, -it would have been out of time. The finding does not hurt A. He need not be heard before the finding is given because he is heard in his own proceedings and the finding given earlier does not bind him. All that happens is that he is faced with an inquiry which he would have avoided if the true facts had not been discovered. He would have faced an inquiry if the matter had been discovered earlier independently of the finding within a shorter period. He now faces the same enquiry but without the limit of time. He need not compare himself with others but only with himself. The different treatment arises under different circumstances and they serve the object which is to bring to tax the tax evader. In this connection, reference may be made to the decision in A. Thangal Kunju Musaliar v. M. Venkitachalam Potti ([1955] 2 S.C.R. 1196.) where two classess of tax evaders contemplated by s. 47 of the Travancore Income Tax Act XXIII of 1121, which corresponded to s. 34 (1) of the Income-tax Act as it stood before the amendment of 1948, and by s. 5 (1) of the Travancore Taxation on Income (Investigation Commission) Act XIV of 11 24, were held to be different classes and not falling within the same category on the ground that action against the former class could be taken on the basis of definite information coming into possession of the Income-tax Officer that income had escaped, while, in the case of the latter, the Government could refer the cases to the Commission on finding prima facie reason to believe that they had evaded payment of tax to a substantial amount. The persons who came under s. 34 (1) (a) of the Income-tax Act after the amendment of 1948 are those in respect of whose income the Income-tax Officer has reason to believe that due to certain conduct on their part their income has escaped assessment, while action can be taken against the persons contemplated by the second proviso to sub-s. (3) against those persons alone with respect to whose escaped income some authority had given a finding or directions. These latter persons would therefore correspond to the persons contemplated by s. 47 of the Travancore Income-tax Act, while the other tax evaders contemplated by s. 34 (1) as amended in 1948 would correspond to persons contemplated by s. 5 (1) of the Investigation Commission Act. We see no reason to hold that the second proviso to s. 34 (3) offends Article 14.In the result, as we have already said, we would allow all these appeals. We would also grant costs of the appellants both here and in the High Court in C. A. No. 585 of 1960 and C. As. No#. 214 and 215 of 1958 but in view of the undertaking given in the High Court by the Department the appellants in C. A. No. 705 of 1957 shall bear the costs of the first and second respondents in this Court and also in C. A. No. 509 of 1958 we would make a similar order in view of the order of the, High Court granting the certificate.79.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]To my mind, all that these words mean is that the section to be considered is the section as it stood before it was amended by the ]Finance Act, 1956, that is to say, the section as it stood as a result of the amending Act of 1948, for that was the section which was in force immedi- ately before the amendment affected by the Finance Act,that is the result of the words used in s. 4, the words must have that effect. That would be no reason to say that s. 4 applies only to notices issued after the 1956 Act came into force. No doubt the words " at any time" would comprehend a notice whenever issued before the commencement of the 1959 Act. But the section protects such notice only against the invalidity caused by s. 34 (1) as it stood after the 1948 amendment, that is, against the invalidity caused by reason of the notice having been issued after the expiry of the time prescribed for it in the section as it then stood. Section 4 does riot protect the notice from invalidity otherwise attaching to it. Now it will be remembered that the 1939 amendment of s. 34 also prescribed a period of time for the issue of the notice. That prescription had to be obeyed whenever applicable. Section 4 provided for no immunity against a breach of that prescription. So, though s. 4 of the 1959 Act freed a notice from the bar of limitation in respect of it imposed by the 1948 amendment, it did not altogether do away with all prescriptions of time. Inspite of s. 4, a notice contemplated by it would be subject to the prescription of time as to its issue under the 1939 Act and may be, under s. 34 as it stood before the 1939 amendment. If the notice was issued after the 1956, amendment it would also be subject to the prescription as to time provided by that amendment.Then it was said that if s. 4 applied to a notice issued more than eight years after the year in which the income escaped assessment but before the 1956 amendment came into force in a case where the escaped income of the year was less than Rs. 1, 00, 000/-, the position. would be curious. A notice issued in a similar case after the 1956 amendment would be bad under s. 34 as it then stood and s. 4 could not save it for it saved notices only from the effect of the 1948 amendment. The position then would be that in a case involving the same amount of escaped income for the same year, a notice issued before 1956 amendment and invalid under the 1948 amendment would be validated and a more recent notice equally invalid under both the earlier and present laws would remain invalid. Assume that the position is somewhat curious or incongruous. But that seems to me to be the result of the words used. For all we know that might have been intended. However strange, if at all, the result may be, I do not think the Courts can alter the plain meaning of the language of the statute only on the ground of incongruity if there is nothing in the words which would justify the alteration. As I have said earlier, in this case there is nothing to justify the alteration of the plain meaning. Consider this. In a case where the escaped income is Rs. 1, 00, 000/- or over, no incongruity as in the case of escaped income below Rs. 1, 00, 600/- arises. In such a case the 1956 amendment removes the bar of limitation altogether and what had not been previously barred cannot become at all barred. So no question of more recent notices becoming barred and earlier notices made valid arises: If on the ground of the alleged incongruity notices issued before 1956 in cases of escaped income of less than Rs. 1, 00, 000/- have to be left out of the scope of s. 4 of the Act of 1959, I suppose we must hold that such notices in cases of escaped income of Rs. 1, 00, 000/or over must also be left out of the scope of s. 4, for clearly the section cannot be read as treating the notices in these two cases differently. But in the latter kind of cases, there is no incongruity. It would indeed be absurd to hold that notices issued before 1956 in cases where the escaped income was Rs. 1, 00, 000/- or over were excluded from s. 4, for in such cases notices may be clearly issued after the 1959 Act under sub-s. (4) of s. 34 introduced by that Act. Sub-section (4) of s. 34 was enacted by the Act of 1959 which also enacted s. 4. If a years escaped income could be brought to tax by a notice issued after the 1959 Act under sub-s. (4), it could not be that it was intended that the same income could not be brought to tax by a notice earlier issued and prima facie made valid by s. 4. There would be no reason to make a distinction between the two cases. If a distinction could not be made between the two cases, and in one case notices issued before 1956 were covered by s. 4, s. 4 must apply to all notices issued before the 1956 amendment came into force.I may, before I conclude, as well say that for the reasons mentioned in the judgment in the case of Commissioner of Income-tax v. Sardar Lakhmir Singh (C. As. Nos. 214-215 of 1958), that I shall presently read today, I think that the second proviso to s. 34 (3) of the Income-tax Act is invalid and cannot therefore support the notice.