Judgment Case ID: 1730

Judgment:
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 C.As. 37 40 of 1963). M. C. Setalvad	 Rameshwar Nath	S. N. Andley and P. L. Vehra	 for the appellant (in C.A. No. 589/63). 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	 C.J. 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 34(1A) of the Income tax Act (No. XI of 1922) (hereinafter called 'the Act '). M/s. K. section Rashid & Son	 and its partner	 Rashid Ahmad	 are the appellants in Civil Appeals Nos. 37 to 40/1963	 and petitioners in W.Ps. 335 345/1960. 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 34(1A) 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. 335 345/1960 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 34(1A) is itself ultra vires. The respondents to the appeals are : the Commissioner of Income tax	 U.P.	 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	 U.P.	 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	 M/s. 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 34(1A) 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 34(1) 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 34(1) thus gives a preferential treatment to the assessees who are similarly placed with the assessees dealt with under section 34(1A); and that amounts to unconstitutional discrimination. It is also urged that in regard to cases falling under section 34(1) (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 34(1A) is challenged before us. Section 34 deals with income which has escaped assessment. Section 34(1) (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 34(1) (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 34(1) 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 34(1A). 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 34(1)	 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 22(2)	 that obligation is not imposed on the Income tax Officer while he deals with cases falling under section 34(1A)	 because the words "as if the notice were a notice issued under that sub section" which are found in section 34(1) are omitted in section 34(1A). It is not seriously disputed that if the notice issued under section 34(1A) 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 34(1A) rests on the hypothesis that the omission of the relevant words in section 34(1A) 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 34(1A) 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 34(1)	 and those falling under section 34(1A)	 that rational classification would not justify the denial of the right of appeal to the persons included in section 34(1A). The question thus presented is one of construction. Before dealing with the construction of section 34(1A)	 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 Another(1). In that case	 while examining the validity of section 5(4) 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 34(1)	 and in view of the (1) ; 832 fact that the procedure prescribed by section 5(4) 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 34(1)	 the conclusion reached was that the impugned section 5(4) was unconstitutional. It is unnecessary to refer to the several grounds mentioned by Mahajan C.J. who spoke for the Court in striking down the impugned section. After this judgment was pronounced	 the legislature intervened and enacted section 34(1A). That	 however	 was not the end of the matter. When section 34(1) was introduced in the Act	 there remained two statutory provisions dealing with substantially the same subject matter	 section 5(1) of the Investigation Commission Act and section 34(1) of the Act. In Shree Meenakshi Mills Ltd.	 Madurai vs Sri A. V. Viswanatha Sastri and Another(1)	 a point was raised before this Court as to whether it was open to the Income tax Department to invoke section 5(1) of the Investigation Commission Act after section 34(1A) of the Act was enacted	 and	 this Court held that it was not	 because on comparing the two relevant provisions	 section 5(1)	 according to the decision of this Court	 contravened article 14 of the Constitution. That is how	 section 5(1) 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 34(1A) of the Act. Thus	 it would be noticed that the present controversy has had a somewhat chequered career. The first challenge was to section 5(4) of the Investigation Commission Act; when the challenge succeeded and the said section was struck down in the case of Suraj Mall Mohta(2) the legislature intervened and section 34(1A) was added in the Act. Nevertheless	 the cases pending before the Investigation Commission were sought to be continued before the said Commission under section 5(1) and this section was struck down in the case of Shree Meenakshi Mills Ltd.(1); and	 now	 that proceedings against the same class of assessees are sought to be continued under section 34(1A)	 it is urged that section 34(1A) 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 34(1A) the clause " as if the notice were a notice issued under that sub section" which is to be found in section 34(1)? In dealing with this 	question	 we think it would not be unreasonable to bear in mind that when the legislature enacted section 34(1A)	 it must have desired to remove the infirmities which had rendered section 5(4) 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 34(1A) was intended to be invoked	 the same remedies that were available to the assessee covered by section 34(1). 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 34(1A) 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 22(2)	 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 34(1A) 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 S.C. 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 34(1A); 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 34(1A). It is true that section 34(1) uses the clause "as if the notice. were a notice issued under that sub section" and section 34(1A) does not; but the two provisions were not inserted in the Act at the same time; section 34(1) in the present form was enacted in 1948	 whereas section 34(1A) was enacted in 1954. It is quite likely that the draftsman who drafted section 34(1A) took the view that the last clause in question which occurred in section 34(1) was really superfluous and that may account for its omission in section 34(1A). In our opinion	 therefore	 construing the relevant words in section 34(1A)	 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 34(1A). If section 22 is held to be inapplicable to proceedings under section 34(1A)	 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 34(1A). 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 34(1A) 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 34(1A) 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 34(1A)	 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 34(1A) 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 34(1) is not available to the assessees who are covered by section 34(1A)	 cannot be sustained. The other contention raised against the validity of s.34(1A) is based on the fact that at the relevant time	 g. 34(1)(a) dealt with cases similar to those falling under s.34(1A)	 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 34(1) (a) and section 34(1A) 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 34(1A) 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 34(1A)	 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 34(1)(a) and section 34(1A) 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 34(1)	 or section 34(1A) in respect of that year. Once the notice is served under section 34(1) or section 34(1A)	 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 34(1A) introduces any infirmity in the said provision. In the result	 we must hold that section 34(1A) 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 Another(1). 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 34(1A) 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 34(1A) and since that requirement is not shown to have been satisfied in his case	 the appellant in C.A. No. 589 of 1963 must succeed even if section 34(1A) 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 34(1A) 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 34(1) was denied to the assessees against whom proceedings were taken under section 34(1A)	 and that while under section 34(1)(a)	 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 34(1A). 827 Held: Section 34(1A) 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 34(1A) that the procedure prescribed by the relevant provisions of the Act beginning with section 22 should not be applicable to proceedings taken under section 34(1A)	 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 34(1A) seems to emphasise the applicability of the relevant provisions of the Act to the proceedings taken under section 34(1A). 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	 I.L.R. [1959] II All. 451	 approved. Suraj Mull Mohta vs A. V. Viswanatha Sastri	 [1955]1 S.C.R. 448 and Shree Meenakshi Mills Ltd.	 Madurai vs Sri A. V. Viswanatha Sastri	 [1955]1 S.C.R. 787 referred to.